Over the next few years we will learn much more about the sensitivity of employment in South Africa to large changes in the minimum wages employers are able to offer. What were 124 minimum wage determinations that varied from sector to sector and region to region has been replaced this year by a National Minimum Wage (NMW) of R3500 per month or the equivalent of R20 per hour.
The first evidence of the brave new world of a much improved NMW is now to hand with the Quarterly Labour Force Survey for the first quarter 2019 published by Stas SA. The survey provides no consolation at all for the proponents of the NMW. The number of potential workers increased by 149,000 in the latest quarter while the numbers employed declined by a further 237,000. The unemployment rate (narrowly defined to include only those actively seeking work) increased by 0.9% to 27.6% and when broadly defined to include discouraged workers, the unemployment rate has increased by a further 1% to 38%.
These regulated minimums were initially proposed by a panel of experts appointed to the task in 2016 by then Deputy -President Ramaphosa. The panel recommended the NMW to be set well above what many workers were earning. The poorest quintile of earners (some 16.3m souls) earned an average wage of a mere R1017 per month in 2016. Only 15.9% of these poorest South Africans were employed (mostly part time presumably) and their unemployment rate was 65.8%
Thus most poor South Africans are not employed – despite –rather because of low wages. Given social grants and the extended families it may make very little sense to seek or accept very low paid work- all regrettably that may be available to those without skills and strength. The newly prescribed NMW will not affect many of them – except perhaps to largely eliminate their opportunities to work part-time.
The next poorest 20% (12.9m of them) when employed had average wages of R1707 per month of whom 35.9% were employed and 37.9% unemployed. The somewhat better off third 20% (52% of a cohort of 9m who worked) earned on average only R2651 per month – with an unemployment rate of 21.7%
It is only when you enter the ranks of the remaining 40% of households defined as “non-poor” by the panel, is the average monthly wage of R4751 well ahead of the NMW of R3500. And the broad unemployment rate is a less mind blowing 14.1%. The top 20% of households (6.483m people) are reported to earn an average R13,458 per month and were fully employed with an unemployment rate of 4.8%.
It would seem that the benefits of a higher NMW would be mostly confined to those in quintile 3 (provided they keep their jobs – big if) And the damage in the form of fewer jobs and less part time work would be concentrated in the same group now earning well below the NMW, yet very much part of the labour market.
The panel admitted that they had very little knowledge of the impact on employment. They estimated job losses in a very wide range of 100,000 and 900,000 job losses. They promised to examine the evidence as it presented itself and adjust their recommendations accordingly. One might regard this cavalier approach as irresponsible social engineering.
For a better idea of just how sensitive employment can be to the cost of hiring workers, the panel might have studied the impact of the employment tax incentive – designed to lower the cost of employing young South Africans (under 28 years ) introduced in 2014. And now extended to all workers in the special economic zones. For the details about how very simply to claim the benefits, see SARS’ own resources here and here.
The 2019 Budget Review proudly pointed to how highly effective offering employers a subsidy of up to R1000 per worker has been for employment. In 2015-16, 31,000 employers (disproportionately employers with fewer than 50 workers) claimed the incentives for 1.1m workers with R4.3 billion of tax revenues sacrificed in 2017/18. That is a tax expenditure of a mere R275 per extra worker and over a million of them.
It is a case of the SA government taking away with the one hand- discouraging low wage employment- and then encouraging it with the other- providing significant wage subsidies to reduce the minimums actually paid by employers. Given the wishful thinking about the benefits of “decent jobs” political more than economic- while conveniently ignoring the costs to the many workers not employed- this sleight of hand – is regrettably as much as we should expect from economic policy.