The real POWER of R20

The new na­tional min­i­mum wage amount of R3 500 is a hy­po­thet­i­cal out­come and fo­cus­ing on it would be un­wise

CityPress - - Business - DE­WALD VAN RENS­BURG de­wald.vrens­burg@city­

The wide­spread fix­a­tion on the R3 500 fig­ure an­nounced for the na­tional min­i­mum wage is mis­guided. The pro­posal is fun­da­men­tally hour based and R3 500 is just the hy­po­thet­i­cal out­come if some­one works a 40-hour week ev­ery week at a rate of R20 an hour.

In re­al­ity, it comes to R3 440, which was rounded up in the an­nounce­ment.

The dis­tinc­tion is cru­cial be­cause most af­fected work­ers cur­rently work more than 40 hours a week.

The sec­toral de­ter­mi­na­tions that set wages in un­or­gan­ised, low­paid sec­tors mostly as­sume that a 45-hour work week is nor­mal. At R20 an hour, that comes to R3 870.

In the pri­vate se­cu­rity sec­tor, the norm is 48 hours per week (R4 128).

“We should stick to R20,” says Im­raan Valo­dia, who headed the panel that this week put the pro­posed na­tional min­i­mum wage on the ta­ble at Ned­lac.

“I was re­ally con­cerned. We de­bated this as the panel and we were clear: it is R20 an hour, R20 an hour...”

“South Africans think in monthly terms. In other ju­ris­dic­tions, such as the US, you ask some­one what they earn, and give you an hourly rate. We only did the R3 500 to get a sense of what the dis­tri­bu­tions will be,” he said.

The R3 500 is sym­bolic be­cause it is roughly the me­dian earn­ings South Africans re­port through the quar­terly Labour Force Sur­vey – the ma­jor of­fi­cial source of labour mar­ket data.

If you took all em­ployed South Africans and split them in two groups ac­cord­ing to de­clared in­come, R3 500 is the mid­dle.

That would in­clude part-time work­ers and peo­ple es­sen­tially work­ing two full­time jobs.

“We worked from R3 500 and we thought that we would want to get to a 40-hour week,” said Valo­dia. That is how R20 an hour came to be. “We would have loved to go higher, be­cause then you could have said you were mak­ing a much more de­ci­sive im­pact, but I think there are pretty se­ri­ous risks of dis­em­ploy­ment,” said Valo­dia.

“You can knock the [eco­nomic] mod­els, but, at some point, we do have an elas­tic­ity. We just don’t know for sure where it is.”

In eco­nomics, an elas­tic­ity is the re­la­tion­ship be­tween a price in­crease and de­mand for some­thing, in­clud­ing labour.

The pro­posed na­tional min­i­mum wage now on the ta­ble is full of con­ces­sions to make the tran­si­tion for em­ploy­ers “as easy as pos­si­ble”, said Valo­dia.

Two ma­jor low-paid sec­tors, farm­ing and do­mes­tic labour, will have lower ini­tial rates, and small busi­ness will get an ex­tra year to ad­just.

State-sub­sided work, in­clud­ing learn­er­ships and ex­panded pub­lic works pro­gramme jobs, should be ex­empted, the panel pro­posed.


There has been a lot of at­ten­tion on peo­ple who are be­ing paid less than the pro­posed na­tional min­i­mum wage, but the im­pli­ca­tions do not stop there, ar­gued Valo­dia.

“One of the is­sues we did not think about and no­body has done any think­ing about is the cas­cad­ing,” he said. “Say, for in­stance, that I am now above the line, I am sit­ting on R3 600. I look be­hind me and sud­denly there are a whole lot of peo­ple who have come to R3 500. I am not go­ing to be happy at R3 600 any more.”

In this way, the na­tional min­i­mum wage could up­set grad­ing sys­tems and job hi­er­ar­chies through­out the sys­tem, he said. “What is this go­ing to do to other kinds of work? There are all sorts of self-em­ploy­ment. What is it go­ing to do to those kinds of bar­gain­ing con­tracts?

“What is go­ing on here re­ally is a change in the bal­ance of power at the bot­tom end. You are giv­ing those work­ers there a bit more power by set­ting a kind of ref­er­ence price.

“It is also nice to have a round num­ber. If that ref­er­ence price is R19.42 or R20.12, it is not the same.”

“There is a hell of a lot we don’t know about what that ad­just­ment process is go­ing to be,” said Valo­dia. “Part of it is go­ing to be em­ploy­ment num­bers, part hours of work, and part pos­i­tive spin-offs from the de­mand-led growth stuff that comes from some of the mod­els.”

Valo­dia pre­dicts that the ad­just­ment to the na­tional min­i­mum wage in key sec­tors will en­tail “some trad­ing up on the wage with a bit of com­pen­sa­tion on the hours, but leav­ing work­ers bet­ter off in rand terms”.

“I think that would be a pos­i­tive ad­just­ment all round. I think the ev­i­dence on this is best in the do­mes­tic work sec­tor, if you look at the im­pact of the sec­toral de­ter­mi­na­tion in the sec­tor,” said Valo­dia.

“The ad­just­ment has been mainly on the hours worked [not the num­ber of work­ers]. You have to think about this in the long term,” said Valo­dia.

“What it is do­ing is putting down a marker for a much more sub­stan­tial kind of re­think­ing of what the world of work will be. The vi­sion we had was of a labour mar­ket where peo­ple earn at least enough to be above the poverty line, but it has got to be an ad­just­ment that takes a lit­tle longer than we would like.”

The way in which the na­tional min­i­mum wage will get ad­justed af­ter it is es­tab­lished is largely left open in the panel’s re­port, but it could be­come very im­por­tant po­lit­i­cally.

“Can you have a na­tional strike if you are not happy with what comes out of the new in­sti­tu­tion?” asked Valo­dia.

These and other ques­tions are left to gov­ern­ment to de­cide.

“I think we have an in­ter­est­ing po­lit­i­cal con­text within which we are do­ing this that you don’t find else­where be­cause of the nature of in­come dis­tri­bu­tion.

“Think about a party like the Eco­nomic Free­dom Fight­ers say­ing we are go­ing to or­gan­ise these guys and de­mand a higher wage. I do think peo­ple are go­ing to use it.”

We would have loved to go higher, be­cause then you could have said you were mak­ing a much more de­ci­sive im­pact

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