THE BIG READ
Wage Wars | Cosatu welcomes R3 500 proposal but job losses are predicted among low-income workers
WITH data this week showing that South Africa’s unemployment rate is the highest it has been in 13 years and one of the worst among the world’s leading emerging-market economies, a proposal of a minimum wage was always set to stir up debate.
Third-quarter employment statistics showed the jobless rate has reached 27.1%, raising concern among some economists that the introduction of a R3 500 minimum wage would only exacerbate unemployment levels.
“The types of job losses you would see are in the low-income groups. They’re the most vulnerable. Their inflation rates are far more volatile, often a lot higher than anyone else’s,” Citi economist Gina Schoeman said.
The move would probably have a detrimental effect on the labour market for 12 months, something South Africa cannot afford.
Schoeman said one had to factor in how much low-income earners spent on food and transport.
“They have no assets to fall back on, so they turn to unsecured credit. Their balance sheets don’t take job loss that well.”
Mamokgethi Molopyane, a labour analyst, said she had spoken to some workers — cleaners, security guards and domestic workers.
“To them a salary of R3 500 would make a big difference. The employer might feel it’s a lot but for people who earn those low wages, it makes a big difference in their lives.”
While the discussion around a minimum wage is a sign of progress, it does not accommodate those who are unemployed.
The government, business and labour agreed to the proposed minimum wage at Nedlac, with no representation for the growing ranks of the unemployed.
South Africa has the highest unemployment rate of all countries tracked by Bloomberg.
“That voice is never heard and unfortunately the only way that they can make themselves heard is through protests,” Schoeman said.
This means that South Africa remains exposed to sociopolitical risks despite measures such as introducing the strike ballot, which is supposed to curb the likelihood of strikes.
Cosatu, which has been fighting for a national minimum wage of R4 500, supported the proposed minimum wage.
The union federation said talk about resulting job losses was not constructive and was what had “bogged down the negotiations for nearly two years, where government negotiators supported proposals for an ultra-low national minimum wage put forward by business”.
Cosatu also warned that business should not consider “insulting proposals for R1 800-R2 200, which they have been advancing over the last year”.
Molopyane said there seemed to be a reluctance to address low wages in the private sector, which was akin to business’s approach to affirmative action and employment equity.
“In South Africa, we have CEOs who are publicly open about spending in terms of leadership and governance. However, they do not spend on the right thing when it comes to remunerating people fairly.”
This led to the question of compliance and the fact that there did not seem to be a policy outlining how organisations would be monitored to ensure that they paid the minimum wage.
Molopyane said it was likely that those framing labour law were eventually going to say they did not want to see jobs lost and a compromise would be reached.
Schoeman said: “If the national minimum wage is too high, then the compliance level will be low.”
This was mainly because a lot of people would prefer to keep their job rather than lose it, “even if it means getting paid below the minimum wage”.
Molopyane said the private sector had often been able to “wiggle itself out of difficult situations”, especially when it came to affirmative action and employment equity.
“Private sector giants will find a way of reasoning that they cannot pay R3 500 in minimum wage. We’ve already seen the business sector saying it’s not sustainable and they will therefore have to retrench employees. So I do not see it being deeply enforced.”
Cosatu said that as part of the minimum wage reform, negotiators should confirm that measures were put in place to ensure its implementation and that all minimum wages across the various sectors be increased to comply with the final minimum wage figure.
As businesses scramble to make ends meet, South Africa might see a surge in temporary employment, especially among small to medium-sized enterprises, which might buckle under the weight of the proposed minimum wage.
“In the short term, private firms, particularly retail, are likely to employ labour on a temporary basis until they have a clearer picture of what’s happening in the overall economy,” said Johannes Khosa, an economist at Nedbank.
“They might be reluctant to hire in the current environment and opt to maintain the number of people that they have currently.”
It is expected that employment levels will surge next month as retailers hire extra staff to deal with the Christmas rush, which would skew employment figures. However, it is unlikely that there will be an improvement in the unemployment rate any time soon.
In the fourth quarter, the numbers are not seasonally adjusted so there tends to be a spike in employment in December because of temporary labour in the retail space.
David North, Pick n Pay’s group executive for strategy and corporate affairs, said it would be premature to comment in detail on the impact the minimum wage would have on the group’s business.
“We are studying the proposal carefully. At this stage it is simply the recommendation of the national minimum wage panel and there is clearly a lot of consultation and negotiation to be done before any final position is reached,” he said.
While a minimum wage would certainly benefit South Africa and reduce unemployment rates over the long term, Khosa said, skills shortages remained a challenge, in addition to matching wage increases with increased production levels.
“In South Africa, the ratio of labour compared to productivity, or wages compared to productivity, is very high,” he said. “This means we are paid more compared to our rate of productivity. So we need to work on the productivity.”
Business saying it’s not sustainable and they will have to retrench employees