Minimum wage proposal in line with similar economies
The proposal to introduce a minimum wage in SA has been hotly debated, with unions arguing that the R20 hourly rate is too low and some businesses saying it is too high and will destroy jobs.
But an international comparison by Business Day shows the proposed minimum wage announced in November by Deputy President Cyril Ramaphosa places SA in the same range as many other emerging economies, if their wages are compared in terms of purchasing power.
The local proposal would give South Africans a similar spending power to people living in Chile and Estonia, according to a comparison with 31 other developing countries.
The R20 hourly wage would give workers between R3,500 and R3,900 a month, depending on how many hours they worked.
It would stretch further than the salaries of workers in Mexico, Russia and Brazil, but not as far as those in Turkey, Poland and Latvia.
The minimum wage in wealthier nations such as Germany and Luxembourg would go more than three times further than that earned in SA.
“It shows ours [the South African proposal] is low compared to both emerging markets and middle-income countries and, unsurprisingly, in comparison to higher-income countries,” said University of the Witwatersrand researcher Gilad Isaacs.
“A lot of these countries have had national minimum wages for a substantial period of time, and many of them would have begun at substantially lower levels.
“In Latin America, the 2000s saw enormous minimum wage increases.
“So we are essentially comparing a South African starting point with a point that other countries have generally reached over a number of years. Latin America has had minimum wages for decades, and the UK has had a minimum wage since 1999,” he said.
Data on national minimum wages for 2015 was obtained from the Organisation for Economic Co-operation and Development (OECD) database.
Statistics SA’s consumer price inflation data was used to convert SA’s proposal from October 2016 prices to 2015 prices. Each country’s minimum wage was reflected in its currency, so in order to gauge how far the money would stretch, it was expressed in terms of its purchasing power parity (PPP), using the OECD’s dollar-based PPP ratios.
A monthly minimum wage of R3,243 in 2015 (equivalent to R3,500 today) would be $553 in PPP terms.
It compares favourably with that of Brazil ($392 in PPP terms) or Russia ($290 in PPP terms), but looks meagre compared to Poland ($909 in PPP terms) or Korea ($1,139 in PPP terms) and pales into insignificance compared to Germany ($2,053 in PPP terms).
Economist Mike Schussler cautioned against comparing SA’s minimum wage to that of more developed countries, because they had better productivity and better educated workers, as well as lower unemployment rates.
He said an international comparison that looked at the ratio of minimum wages to median wages gave a better indication of their affordability.
He calculated that the proposed minimum wage was 92.5% of the full-time median wage, beating all the developed countries which on average had a minimum wage that was half the median wage.
Only five out of 21 developing countries had minimum wages that were over 80% of the median wage, he said. Brazil’s minimum wage was 78% of its median wage, and thus the South African proposal looked good by world standards, he said.
“I honestly believe our minimum wages are fine for most formal businesses, but agriculture, domestic workers, personal care, security services and very small businesses are going to struggle to get there on time,” he said.
THE PROPOSAL WOULD GIVE SOUTH AFRICANS A SIMILAR SPENDING POWER TO PEOPLE IN CHILE