National Minimum Wage: Workshop presented by UCT Development Policy Research Unit

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Employment and Labour

19 August 2014
Chairperson: Ms L Yengeni (ANC)
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Meeting Summary

The Development Policy Research Unit from the School of Economics, University of Cape Town presented the outcomes of its ongoing research and statistics of the employment and wage shifts in the South African economy, the impact of the minimum wages through sectoral determination process, and reflections on enforcement around the minimum wage. A number of tables and diagrams were represented. The first illustrated the shifts in employment figures and contributions of sectors to GDP, which also showed job losses around 2008, but a later rise in employment, and, overall, there was a huge reduction in employment. Some sectors, where it was expected that there should have been increases, significantly manufacturing, instead showed decline, which illustrated that the sector was not sufficiently dynamic. Mining and government service contributions to GDP also declined, but agriculture remained more or less constant. The greatest proportion of jobs were found in community service and tertiary services. Most growth had occurred prior to 2012, but there were substantial drops in the primary sectors.
The public sector had been the largest creator of jobs since 2002.

Further statistics were presented on the wage shifts over the years, showing distinct rises and falls, and the year when the minimum sector determination was introduced was specifically shown, to compare movement before and after that event. The data from the South African Labour Force Surveys between 2000 and 2007 informed the statistics and each group selected was compared to a control group, to look at the impact of the minimum wage. The impact on workers, wages and hours were all shown, and the average and minimum wages were compared. It was concluded that the introduction of the minimum wage did not have a negative impact on employment, although in non-agriculture sectors there had been some reduction in hours of work, and in the agricultural sector, an increase in hours worked per week. The compliance on contracts had improved. It had been found that, in 2007, around 45% of the workers investigated were paid below minimum wages, a problem exacerbated by the fact that the likelihood of inspection was low, showing a real need to properly resource the inspection division. Fines were levied. It was suggested that it may not always be appropriate to increase minimum wages, but rather to consider other alternatives, including keeping the wages low, and therefore more affordable to employers, but topping them up with a social wage, or improving compliance and enforcement, although this had improved in some provinces. The Unit suggested that critical issues included the correct choices on the level of wage, whether it would be a single or split wage, enforcement measures, a phase-in period and the use of the Employment Conditions Commission or a Minimum Wage Commission, as the governing structure.

Members questioned whether there was not more up-to-date data, but it was explained that certain factors could only be illustrated from the data available in previous years. They wondered who would choose the levels of the minimum wages, and discussed the risks should this be government alone. They questioned whether percentage figures showed much variance, wondered what actual numbers were involved, and asked if it would be possible to break down the statistics further. Members enquired whether it was small or large businesses who were non-compliant and whether the figures were skewed by businesses seeking exemptions when hard-pressed to come up with the minimum wage, and how this might be addressed. Members asked for clarity on the choice of control groups. They asked if the figures were extracted country-wide, and whether there was evidence to suggest that job creation would suffer should the minimum wage be introduced. They asked about comparisons from other countries, whether living conditions had actually improved where the minimum wage was introduced, and what assumptions had been made where data was not available. The operational efficiency of the Commission was questioned, and the Chairperson stressed that there would have to be serious debate about the meaning of the “minimum wage”, the need for a living wage, and to carefully consider points that would be made in the public hearings.
 

Meeting report

Chairperson’s opening remarks
The Chairperson noted that the academic team from UCT would be presenting its research about the national minimum wage. She noted that this topic was a work in progress at the Department of Labour (DoL or the Department) and Parliament would have a role to play when the final decision on this had been made, so it was important to work with stakeholders in preparation.

National Minimum Wage: Workshop presented by Development Policy Research Unit, School of Economics, University of Cape Town
Prof Haroon Bhorat, Researcher, Development Policy Research (DPR) Unit, School of Economics, University of Cape town gave a brief overview of the presentation and said he would present some statistics on employment and wage shifts, consider the impact of the minimum wages through sectoral determination process, and reflect on the enforcement of the minimum wage.

Over the period 2001 – 2012, there had been shifts in employment and in their contribution to GDP, and he pointed to loss of jobs from 2008, and a rise in employment again from 2010, as illustrated on graph 1 on page 2 (see attached presentation). There had been a massive reduction in employment over the years, compared to other countries.

Prof Bhorat gave some illustrative examples of the share of GDP by sector. The manufacturing sector should have been increased, but instead showed a decline of 2% after 20 years of democracy. This showed that there was an uncompetitive and non-dynamic manufacturing sector. The contribution of both mining and government services declined, but agriculture remained constant. The current economy which was more dependent on financial services and less on the manufacturing sector.

Prof Bhorat noted that graph 1 on page 3 illustrated labour intensive growth, and indicated that, taking a line at 45 degrees from the y axis, from the 0% point, anything falling below that line would illustrate cases where GDP was faster than employment growth, while anything above the line meant that employment was growing faster than the output. Labour intensive growth was creating more jobs than the economy output which meant that although sectors were growing, the jobs were being created in those sectors at a slow rate.

Looking at the agriculture sector, the value added or output had grown to negative and there was job reduction. Negative value added led to a decrease in employment. The largest portion of the 2.5 million jobs since created were related to community service and tertiary services, as illustrated by the second table on page 3.

He noted that the biggest job creator since 2002 was the public sector and the financial and business services captured a larger number of labour workers.

There were jobs specifically demanded by those who are highly skilled, semi skilled and unskilled. Employment since democracy had been driven by the 2001-2008 period. Most of the growth up to 2012 occurred before the recession, since there had been substantial drops in employment in the primary sectors.

Mr Benjamin Stanwix, Researcher, DPR Unit, presented the wage shifts taking place over the years and the work that had so far been done. He noted that the rise and fall of real average wages by each sector over the years had been significant, and pointed to the data in the two graphs on slide 5. He noted that there were five sectors considered, with 2.2 million individuals. In 2007, he noted that 17.2% was non – agricultural employment, and he illustrated from the graphs how the sector, occupation and geographical area were plotted, considering the year when the minimum wage was introduced, from when the minimum wage would be mapped also.

Over this period, there were about 15 waves of data from the South African Labour Force Survey (LFS) conducted between September 2000 and 2007. He explained that this was a biannual national household survey conducted by Statistics South Africa. The data was pooled and treated as repeated cross sections across time.

The method used was firstly the identification of control groups in a sector, analysing their characteristics and the impact of the minimum wage on this group. For example in the agriculture sector, the data showed what happened to the workers, the wages, and hours worked after the introduction of the minimum wage (the law) in 2003.

In the first specification, consideration was given to what happened to a particular group of people in employment, in the pre-law period and the post law period, looking at the control groups and similar groups. In the second specification the researchers would construct a geographical variable, and this would illustrate that in the pre – law period, there were district councils around South Africa. There was a calculation done of the average wage from the minimum wage, to give a sense of what people were currently earning and what the influence of having the minimum wage was likely to be.

Prof Bhorat stated that the good news was that the impact of the minimum wage was zero, having had no significant negative impact on employment. He reminded Members that the minimum wages were introduced over the period 2002-2007, over which period there was an increase in employment and the wages, save for the forestry sector. (See table 2 page 8 and table 1 page 9).

In the case of the non-agriculture sectors, there was no reduction in employment but there was a reduction in the average hours of work, except in the taxi, forestry and domestic work sectors. In these cases, the statistics showed that there was not so much management of workers but the wage.

The average characteristics of the treatment group (2000-2007) showed a specific result when the minimum wage in agriculture was introduced in 2002. The hours of work were, in previous years, respectively 42, 43, 39, but after the minimum wage was introduced, this increased to 49. The full time equivalent hours dropped but the hours per week increased. However, for those who did not lose their jobs, this meant an increase in wages.

In the case of non– agriculture minimum wages there was a move away from non–permanent workers,  which saw an increase in real hours of work, no significant employment effects, but a reduction in the usual number of weekly hours worked. When the agriculture minimum wage was introduced, the farmworker wages rose by 17% and there was increased contract coverage (the number of workers with a written employment contract) to reach 57% in 2007.

He outlined some key considerations for the minimum wage as follows:

- The Employment Conditions Commission (ECC) under the Department oversees sectoral determinations, but not enforcement
- The Department is responsible for enforcement, through the inspection and enforcement service (IES) which is a provincial competence.
- 45% of covered workers were paid wages below the legislated minimum wage in 2007.
- The probability of inspection is low.
- Therefore, enforcement is critical, yet the relevant division for inspections is under–resourced.

He further pointed to a table on slide 14, which illustrated the fines for non compliance in relation to the workers being paid below the minimum wage. However, where there were violations, it may not always be an appropriate response to increase the minimum wage, but rather to increase enforcement services, if necessary coupled with an increase in the minimum wage.

Partial compliance in agriculture for the period 2001- 2005 was seen after the minimum wage was instituted, A comparison of actual and minimum wages showed a dramatic shift towards compliance, from the situation where on average 45% of the workers were below minimum wage(see slide 14).

Partial compliance in the agriculture sector, by province, was also shown between 2000 and 2007,and he noted, taking an example of the minimum wage of workers in the province of Limpopo, how the shifts were shown, and said that although there were workers still below minimum wage however the gap had been closed.

In conclusion, the DPR Unit suggested that the following issues were noteworthy:
- Choosing the level of the wage was crucial
- There was a need to decide on a single or split wage (e.g Youth agriculture and non-agriculture)
- Enforcement efforts were needed, including properly resourcing the inspection services
- A phase–in period should be allowed, permitting employers to think about the minimum wage.
- The ECC should be used as the governing structure, or a new Minimum Wage Commission.

Discussion
Mr M  Bagraim (DA) thanked the team for a good presentation. He noted that during the world economic collapse there was a lot of pressure on the figures, as seen by the fact that the employment dropped by almost 50% in agriculture. It would be interesting to see what came out of the next survey. He also asked who chose the level of minimum wages.

Mr D America (DA) noted that the information presented was outdated.

Mr I Ollis (DA) stated that there were periods of time when the minimum wage was different across all industries, so he wondered if it would always be that the percentage figures were constant. He wondered also if the small businesses were paying less, or if they and the large businesses were showing the same tendencies and trends on the minimum wage, and if there was evidence of less compliance, because of their ability to comply, in the small businesses.

Ms F Loliwe (ANC) also raised a concern that the statistics were outdated, quoting figures in 2008. The largest job-creator was the public sector and so she wondered why it had not been analysed, as had been done with the agriculture sector.

Dr Shane Godfrey, Researcher, Labour and Enterprise Policy Research Group, asked whether the DPR Unit, on the basis of its research, would recommend the minimum wage as a yearly wage, daily wage or monthly wage and asked what the implications would be for each type of calculation.

Mr P Moteka (EFF) asked when, in doing this research, the Unit had checked how employers decided on the amount they were to pay, bearing in mind that they should not be paying below minimum wage, and whether there was any consideration given to financial difficulties which might mean that the employer was hard-pressed to pay the given amount

Mr M Plouamma (Agang) noted that a decision should be made in terms of profitability, which might help the Committee to consider whether there were short-falls on hours, or a reduction of employees.

Mr Plouamma asked also asked for clarification on the control groups, and he wondered why there was mention of Afrikaans and coloureds, and why there was not inclusion of whites and Indians, and whether this implied that the whites were invariably the employers.

Ms S Van Schalkwyk noted that the high rate of non compliance of employers arose partially as a result of some employers who applied to be exempt from the minimum wage, and asked if there was a breakdown on this point. She asked what the point was of pushing for the minimum wage although statistics showed that there were employers who pushed for exemption.

Mr Woody Aroun, Parliamentary Officer, NUMSA, suggested that employers need to be pushed very hard to comply with the minimum wage.

Mr Stephen Rathai, Labour Relations Manager, Department of Labour, stated that the most important debates in the country were essentially about poverty, unemployment and inequality in society, and how to assist the working poor to be lifted out of poverty. This was a point that had to be looked at in all future discussions.

Mr P Moteka pointed out that the employers had not been able to comply with the Employment Equity Act and this suggested that they also would not be able to comply with the minimum wage.

Mr W Madisha (COPE) noted that this report concentrated on only two provinces and asked for the unemployment figures across the whole country. He said that the issues must be looked at properly and comprehensively.

Mr Bagraim noted that there was a high rate of unemployment and strongly believed that there would be a reduction in job creation with any introduction of the minimum wage.

Mr E Nyekemba stated that research was informed by what the President said, namely that there would be an investigation of the national minimum wage. He cited the example of Germany, which had introduced a national minimum wage, and asked if this research was limited to only South Africa, and, if so, why there had not been a comparison with other countries.

Prof Bhorat explained the dates used for the survey, by saying that the statistics in South Africa between 2007 and 2010 did not produce any wage data, and there was thus no related information to compile data. The main question was the impact of the policy interventions. He explained that although the current determination was based on hourly wages, and in some cases on monthly wages, the end result was the same.

Speaking to queries whether the minimum wage would reduce or increase employment, he suggested that it would be useful to come up with a special dispensation for agriculture, as had been done in other countries, and have a social wage also; in other words, the minimum wage would be relatively low but the social wage would compensate.  

He noted that the first version of the report did not look at agriculture, but had looked at the impact of housing and property, and the reduction in housing and property levels. The study had also considered the kind of housing where the workers were living, and the impact, and tried to identify workers who had lost their jobs. Most of the data was in fact gathered nationally, so it was the national impact that had been considered in the survey.

Prof Bhorat explained that one conclusion was that it was the small businesses that were most likely to violate the law. He explained that “violation” meant that there was a discrepancy in the wage that employers were paying, being lower than the minimum wage. The survey had asked direct questions about what employers were paying.

There was no data on employers and profits, but there was a big macro-economic question about what was happening in relation to profits; if the profits were staying constant, then the wages would reduce.

The Chairperson asked if this research only relied on South Africa or on other countries.

Prof Bhorat responded that there was no source for the survey better than the South Africa labour force.

Mr Plouamma noted that in the Western Cape, there was more compliance, and he enquired about the reasons for change, whether the minimum wage did anything to change the living conditions of workers, who decided that minimum wage, and whether it was market-related, and who, and for what reasons, was included in the control group.

Mr Plouamma pointed out that there were worker strikes in the Western Cape, although the fact that there was a minimum wage might seem to suggest that the relationships between employer and employee should be better. He also asked whether non compliance was constant.

Mr Stanwix responded that the criteria for the control group would vary; and was based on the sector in which the research was being done. The reason for including mostly coloured and Afrikaans in the control group that was questioned was that the majority of workers were from these groupings. The control group had tried to include a larger number of female coloureds and Afrikaans.

Mr Stanwix noted that the non-compliance was not constant, and since the since the law was introduced, there had been a decrease in non–compliance and more employers tended to comply.

A Member noted that the research looked at the short term impact of the minimum wage, but enquired what the long term effect was, and said that he would have liked to have heard more about the current position, pointing out that a lot had happened in the last four years in South Africa.

Mr Piet le Roux, Researcher, Solidarity, noted that every policy came at a cost and similarly the national minimum wage would come at a cost.

Mr Ollis noted that there seemed to be an assumption that sectors without data would necessarily show the same patterns as the non-agricultural sectors, such as manufacturing, but asked why and on what basis there was such an assumption.

Prof Bhorat responded that the question whether the minimum wage would reduce poverty required an analysis of the real situation where some people would lose their jobs, and some would be retained but their hours of work would be increased. It was necessary to consider whether the poverty was greater than the work, which required in turn a consideration of the household circumstances before and after the minimum wage. However, this was complicated by the fact that, particularly in the agricultural sector, there was not always a cash wage paid, but there were benefits such as housing, education, transport or medical care. As guidance to the Committee, he suggested that non-wage payments had to be considered, for the purposes of the agricultural sector, as payment in kind. He reminded Members that the national minimum wage would differ from the minimum sectoral wage. He suggested that the longer-term view would be obtainable from data in the period 2012 to 2014.

Mr Piet le Roux raised a concern about the operational efficiency of the ECC, and why there might be different levels reached in different areas. He suggested a system could be found that was easier to administer. He noted that there was a special relationship between employers and workers, and if government was brought in to determine what the national minimum wage level should be, it may shift the balance between them, and ran the risk of a perception that issues that workers had with employers had now been shifted and become an issue with government.

Mr America asked what percentages were apparent in payments below the minimum, and how much was actually the shortfall.

Prof Bhorat noted that the pursuit of a minimum wage was a tradeoff between equity and efficiency. A minimum wage was intended to protect vulnerable workers, rather than well organised young workers. Efficiency considerations were brought in because of the negative economic consequences. In relation to the setting of a minimum wage, he repeated that the lower the minimum wage the higher the likelihood of compliance. More firms would be able to meet that minimum wage, if it was set at a reachable level for employers, and a figure that would protect vulnerable workers.

The Chairperson asked how many workers had actually lost their jobs since the introduction of the minimum wage; it was mentioned that the study had not looked specifically into this figure, and she also asked if the research was able to note how many households were affected. If, in each province, the research had reached this stage, then it should surely be able to detail the job losses also.

Prof Bhorat confirmed that the research team had indeed looked at each province and the farm workers there, but the difficulty lay with ascertaining, confirming and finding the farm workers who had actually lost their jobs as they were not found.

The Chairperson asked how the research findings were the reached, if the researchers had not been able to get that information.

Prof Bhorat stated that it was a matter of looking at the average wage in the province, as illustrated by graph 2 on slide 14.

Mr Stanwix added that the levels of compliance gave an indication of how far the minimum wage had impacted on the situation. The inspections had isolated the numbers of employers who had been violating the law, but not the number of employees affected by that violation. The research was intended to give an indication of the state of compliance.

Mr P Moteka asked how it could be ensured that the minimum wage helped with actual economic transformation, and whether it was possible to have an empowerment consideration also.

The Chairperson noted that the introduction of the minimum wage had followed a call by the President of the country, and the researchers might not be able to give the right answer.

Mr Rathai said that it would be necessary to be careful on the meaning of “minimum wage”. Even if there were to be any lowering of the minimum wage, the responsibility remained to fight for better conditions. No one should enter the market to be paid below the minimum, and the current situation where this was left up to the employers would leave the workers at a disadvantage.

The Chairperson noted that this was a political and economic issue. The main purpose was to bridge the gap between “the haves” and the “have-nots”. There was a need for a living, and not a poverty wage. There would be public hearings and those would help to inform the Committee. She noted that there could not be said to be a definite conclusion that the minimum wages had led to loss of jobs.

The meeting was adjourned.
 

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