Minimum wage vs the robot age
As digital technology advances, World Bank argues for lower pay floors, combined with basic income grants and social insurance
South Africa is gearing up to introduce a national minimum wage that could see workers earning R20 an hour, yet the World Bank says the future of work requires revised labour regulations with lower minimum wages, easier dismissals and lax contractual agreements.
A draft of the World Bank’s 2019 World Development Report on the Changing Nature of Work says the working environment is being consistently disrupted by digital advancements and labour rights are becoming “burdensome”, making workers more expensive than technology. To make up for the reduction in labour rights, the draft report proposes a social insurance system that provides everyone with a guaranteed income linked to the “flexible labour markets”.
“This approach may reduce benefits for the few covered by current arrangements but will add protection to the many workers — often the most vulnerable — who are effectively excluded today,” according to the report.
The 158-page document bases this argument on the fact that employment, particularly in the developing world, is rapidly changing — “more than half of the global labour force is estimated to be informal”. This is because digital and general technologies are eroding the standard model of work “based on a contractual, often stable, relationship between an employer and an employee”.
The report says technology has made some types of work accessible to every individual on a more flexible basis, with examples ranging from grocery delivery to sophisticated tasks such as accounting.
But as labour markets become more fluid and these new gigs — online, short-time and remote jobs — provide flexible and new earning opportunities, they are in a grey regulatory area that does not provide benefits that formal workers normally enjoy.
“After all, labour regulations are often used as a tool to provide the protections that social assistance and insurance systems fail to provide, such as ensuring a livable wage through the minimum wage or unemployment benefits through severance pay,” says the report.
It says the adoption of technology is being slowed down by strict labour regulations, “specifically with burdensome dismissal procedures”, and “technology-intensive sectors are smaller in countries with stricter labour regulation”.
Although the World Bank recognises that minimum wages are legislated to protect workers against abuse by employers who may have more market power, it still says they “warrant rethinking”.
The report says an alternative to the minimum wage could be a system that links wages to productivity, such as profit-sharing. This could be monitored by social partners and covered by company collective bargaining arrangements.
Workers would receive a lower minimum wage and the revenue from the profit sharing could be deposited into an individual savings account. Increased risks in the world of work make it imperative to adapt how societies protect workers, the draft report says. This could be done with an inclusive minimum income coupled with basic universal social insurance.
The minimum income could be issued in various forms, either as a universal basic income programme, “where benefits are clawed back from the rich”, or a negative income tax. This “social protection” would apply to everyone irrespective of whether they were formal or informal workers.
The report stresses that the minimum income should be “progressive”, meaning it should adequately cover the “poorest while also extending support to other vulnerable groups”.
“Each of these modalities present different comparative advantages, fiscal, political and administrative implications,” it says.