National Minimum Wage: input from South African National Taxi Council & Stellenbosch University

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Employment and Labour

10 September 2014
Chairperson: Ms L Yengeni (ANC)
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Meeting Summary

SANTACO presented on the national minimum wage (NMW). The taxi industry is a critical pillar in South Africa’s public sector, transporting more than 70% of passengers per day which is approximately 16.5 million commuters. SANTACO had over 100 000 members, represents 90% of taxi owners and was the major broad based economic conscious business after soccer. Its leadership was democratically elected. It has a market share of 65%, contribute about 3.4 to the GDP, employs over 600 000 people, with approximately 200 000 taxis. The taxi industry was the only transport sector that was not subsidized as the government continues to pay subsidies to buses and rail transport in line with apartheid laws discriminating against the millions of poor who use taxis every day. The industry was preparing itself for major battles with monopolies to ensure that its members benefit through the value chain that remains in the hands of white capital.

The taxi industry had been fully behind setting minimum wages over the years and it supports the initiative of setting a national minimum wage. However, due consideration should be given to various options available to achieve an ideal income level while ensuring mass employment. The minimum wage was not easy to implement in the taxi industry because of the system of commissions and employers were dependent on driver not pilfering from the takings. SANTACO was in the process of implementing an electronic payment system to enhance revenue collection and close off pilferages. The current sectoral determination in the taxi industry was R2 847. Drivers were paid around R3500 but take around R7000 if one includes lunch, dinner and pilferages. The driver was more like a shareholder.

SANTANCO was commended by various stakeholders present for the work it does in transporting millions of South Africa to work, its support for the national minimum wage, its vision for establishing a vehicle operating plant and its call for a balanced approach in setting the national minimum wage.

Professor Rankin from Stellenbosch University said that empirical research revealed three findings:
▪ Larger firms pay higher wages,
▪Smaller firms hire people with lower skills; and
▪Wages is a higher proportion of costs for smaller firms.

A binding national minimum wage will affect sectors differently depending on the wage elasticity of demand. A binding NMW will raise the wage of the lowest skilled workers making them expensive to hire, this will affect firms that pay the lowest wages - usually small firms - and the most vulnerable sectors were those vulnerable to international competition especially tradable sectors. The cost of NMW affects tradable sectors because such goods can be substituted by imports. Smaller firms in sectors with active bargaining councils were more likely to exit in the face of international competition. Bargaining councils can drive smaller firms out of competition if they set high wages when these are extended to non-parties.  Non tradable sectors such as retail, taxis, security and domestic workers were less vulnerable compared to tradable sectors such as agriculture. Is the national wage the correct income for the desired outcomes of reducing unemployment, poverty and inequality? The probability of job loss from smaller firms who cannot afford a national minimum wage increases unemployment as they exit business. It was unlikely to reduce poverty in the first round as those employed will just earn higher salaries and neither does it reduce inequality. The major question that remains is who will decide the NMW because the players were likely to be the referees. He said that he has not made up his mind in favour of NMW or not. This will be dependent on how the process is structured as they were too many questions to be cleared up before implementing the NMW. But wage floors have different effects on firms, sectors and geographically. Global competitiveness affects a labour intensive growth trajectory. The NMW would need a transparent way of calculating what people need to live. Key issues to think about:
▪ What is the correct level?
Does this differ across certain dimensions such as firm size; youth; sectors
▪ How does it link productivity and wages?
▪ How does this affect existing structures?
▪ Who decides?

Prof Rankin's submission generated mixed reactions. Trade unionists were critical, arguing that his comments about bargaining councils had gaps in it and this seeks to reverse the gains they have made in the labour sector. Others were supportive. saying it spoke to the realities of South Africa today as the real issue was unemployment at around 35%. Prof Rankin commented that he did not know of any country having a NMW with high unemployment rates like South Africa's.

Meeting report

South African National Taxi Council submission on Minimum Wage
Mr Nkululeko Buthelezi, SANTACO CEO, said the taxi industry is one of the main critical pillars in South Africa’s public sector transporting more than 70% of passengers per day which is approximately 16.5 million commuters. SANTACO had over 100 000 members, represents 90% of taxi owners and was the major broad based economic empowerment business after soccer. Its leadership was democratically elected. It has a market share of 65%, contributes about 3.4% to the GDP, employs over 600 000 people, with approximately 200 000 taxis.

SANTACO intends to establish a vehicle manufacturing plant so as contribute to economic empowerment, job creation and economic growth. The taxi industry was the only transport sector that was not subsidized as the government continues to pay subsidies to buses and rail transport in line with apartheid laws discriminating the millions of poor who use taxis every day. The industry was preparing itself for major battles with monopolies to ensure that its members benefit from the value chain that remains in the hands of white capital.

The taxi industry had been fully behind setting minimum wages over the years and it supports the initiative of setting a national minimum wage. However, due consideration should be given to various options available to achieve an ideal income level while ensuring mass employment. The minimum wage was not easy to implement in the taxi industry because of the system of payments like commissions, employers were dependent on what drivers declared was their takings. SANTACO was in the process of implementing an electronic payment system to enhance revenue collection and close off pilferages. The current sectoral determination in the taxi industry was R2 847. Drivers were paid around R3500 but take around R7000 monthly including lunch, dinner, and pilferages. The driver was more like a shareholder. There were other areas that SANTACO needed support in order to comply with legislation. The setting of a national minimum wage should not be too high that it only benefits those that are employed.

Discussion
Mr M Bagraim (DA) said the minimum wage was difficult to implement in the transport sector as well as other sectors that work with commissions and face leakages. He asked if it was better to have a minimum wage specially designed for the transport sector than having a national minimum wage across the board.

Mr M Ollis (DA) said the SANTACO submission was helpful and he agreed that the solution in South Africa was dialogue. Apartheid has left a legacy of people living very far from work and amenities. The taxi industry bridges the gap by bringing people closer to work and government must support it as a public transport entity. He said when the minimum wage was implemented in the taxi sector, there were no job losses recorded. He asked if people were working fewer hours including rank marshals but still getting the same wages. In the mining industries, workers were demanding R12 500 minimum per month; he asked the effect of this amount should it be set as the national minimum wage.

Mr P Moteka (EFF) asked when the process of electronic fund collection would be finished as it was key in helping the Committee to determine how much the taxi industry makes per month and to decide on a minimum wage that can sustain in the long term. The aim was not to kill the industry, but to protect the employees as well.

Ms F Loliwe (ANC) asked if taxi drivers were permanently employed or were employed as casuals. SANTACO must be clear on the minimum wage. She asked why SANTACO would need collaboration to comply with certain pieces legislation.

Mr M Plouamma (AGANG) asked if SANTACO recognises its members as an employer organisation and whether the employers pay Unemployment Insurance Fund (UIF), and be clear if it supports the minimum wage.

Mr D America (DA) was impressed by the closing remarks of Mr Buthelezi as there was a default bias towards the employed against the unemployed. The approach has to balance protecting the employed and unemployed.

Mr Mohamed Ishmael, Union Official, National Union of Metalworkers of South Africa (NUMSA), asked what formula is used in determining the minimum wage in the taxi sector. This is because people often argue against it by supporting the notion that it will be much higher than what was currently being paid in certain sectors and thus result in job losses. He was speaking of vulnerable groups, those that were exploited with poverty wages, and causing the inequality that was existent in South Africa.

Mr Buthelezi replied that he supports the national minimum wage, but various factors had to be considered before it was implemented. Indeed there was a cost of living issue because some people spent 50% of their income on transport alone. There was merit in having a sector-based minimum wage, with the determinants in that particular industry while other industries might pay more. The base must not be high such that it was not sustainable. When the sectoral determination was implemented, SANTACO did not lose any jobs. If the people were working the right number of hours, with the transport sector subsidised, it should have even created more jobs. Some drivers start work at 4am and end at 9pm. If it gets subsidised, it could double the number of jobs, and limit the number of hours drivers work as they will have shifts.

Mr Buthelezi said the sectoral determination was calculated using natural wisdom. Sometimes a driver was given a target of R500 and the balance goes into his pocket. A sustainable employment sector would like to have sustainable salaries, with medical benefits so that the life of drivers improves, and for the queue marshals. SANTACO did a study on fares to avoid them rising every time there was an increase in the fuel cost and came out with taxi fare index which taxes all the costs of running the taxi industry. This limits the increase of fares every time there is an increase in fuel price. Likewise salaries do not change every time, but are determined annually. Members of SANTACO pay UIF and tax as it was important in getting and renewing a licence. Others may do creative tax management or not comply. SANTACO needs support as its resources were limited and it was unable to engage in capacity development for its members. Some of the taxi ranks were in a very poor state. The Committee might explore study tours to come up with a formula. In China, there was a minimum wage for provinces and local government. The R12 500 as a national minimum wage was too high for SANTACO. 

Mr George Warrington, Branch Official, Federation of Union in South Africa, asked the average salary of drivers across the board.

Mr Vuyo Lufele, Union Official, NUMSA, said the submission by SANTACO looked at various sectors affecting South Africans and alluded to the imbalances in government not supporting the taxi industry. For instance, the Gautrain serves the economically advantaged. He was impressed that SANTACO was supporting the national minimum wage because previous submissions in the past weeks were opposed to the initiative by government to explore a national minimum wage. SANTACO has a good vision in establishing an industry manufacturing taxis; the government must support this organisation.

Mr Mathew Parks, Parliamentary Officer, COSATU, said SANTACO was a strategic industry without which the economy cannot function. The taxis have a difficult task competing with the rail and bus industry that receive subsidies. There were cases of lawlessness in the taxi industry with some of the owners engaging in drug dealing. He asked if the drivers get time off and about their pension conditions. The taxi drivers work nearly 50 hours a week, which was above the 10 hours one should work per month as over time. He disagreed with Mr America that everyone who worked belonged to the elite - as the elite included mining bosses earning R40 million per year, and not a domestic worker earning R2000. All workers have a right to protection regardless of sector. COSATU demands a minimum wage to uplift those in poverty, and not to suppress a minimum wage. Some bosses down the road would like to pay lower wages should the minimum wage get set too low.

Ms Nkosazana Masiza, Parliamentary Officer, National Union of Mineworkers (NUM), asked if the money taken by drivers through pilferage was to increase the wages they were not satisfied with. It would be fair if it was regulated as in the mining sectors where employees have ownership stocks that give the employees benefits annually.

Mr Moteka said SANTACO must be commended for not being anti-minimum wage - demonstrating that not all capital groups were anti minimum wage. The R12 500 demand had never been spoken of by domestic workers or the drivers in the taxi industry.

Ms S van Schalkwyk (ANC) said the focus of the SANTACO submission was mainly on taxi drivers; she wanted clarity on the welfare of rank and queue marshals. She asked for any statistics on employers who have asked for exemption from the sectoral determination.

Mr Buthelezi replied that driver wages were different because it was dependent on whether somebody works in rural or urban areas, cost of living, and some routes were lucrative while other were poor. There was a perception that taxi driving was a bad job, yet it was not. Some people came intending to work for a week, but forty years later, they are still driving. People who finish school must consider taxi driving as an employment choice. Levels of compliance differed from association to association. There were challenges as some people do not understand why they must pay UIF. While the debate was about minimum wage, it was also important to have a National Maximum Wage as there was a huge gap between low income and high income earners. It creates a problem when business try to justify paying the top end higher salaries whilst paying low levels at operational level. Drivers were shareholders informally because they retain some money, but it would be good to formalise this. The industry needs to still learn how to build wealth so as to pass it on to other generations. The rank marshals earn above the sectoral determination, but the conditions were not good even though there were low levels of turnover. Countries like Brazil, China and India have low unemployment rates with high economic growth with a national minimum wage. It will be difficult to find the right formula for a national minimum wage; it was an interesting job for the Committee.

Stellenbosch University Economics Department submission
Professor Neil Rankin began with an analogy in pictures on small and big firms: larger firms pay higher wages, smaller firms hire people with lower skills but the wage share was high for smaller firms in proportion to their costs. A binding national minimum wage will affect sectors differently depending wage elasticity of demand. A binding national minimum wage will raise the wage of the lowest skilled workers making them expensive to hire, affecting firms that pay the lowest wages – usually small firms. The most vulnerable sectors were those vulnerable to international competition, especially tradable sectors. Smaller firms in sectors with active bargaining councils were more likely to exit in the face of international competition. Bargaining councils can drive smaller firms out of competition if they set high wages, especially its extension to non parties.  Non tradable sectors such as retail, taxis, security and domestic workers were less vulnerable compared to tradable sectors such as agriculture. Is a national wage the correct solution for the desired outcomes of reducing unemployment, poverty and inequality? The probability of job loss from smaller firms who cannot afford a national minimum wage increases unemployment as they exit. It was unlikely to reduce poverty in the first round as those employed will just earn higher salaries and neither does it reduce inequality. The major question that remains is who will decide the NMW because the players were likely to be the referees. He concluded by suggesting that South Africa may need to look at the United States model of earned income credit  where those who earn little, receive money from the highly taxed.

Discussion
Mr Woody Aroun, NUMSA Parliamentary Officer, said Professor Rankin does not really support minimum wages because he was throwing out a lot of questions. Prof Rankin was hard on extension of bargaining council agreements to non-parties and, by doing so, Prof Rankin was trying to roll back the gains the trade unions have made. 58% of wage increases were determined by the employer. It was not just about union bargaining. Employers have the choice to join employer organisations whether small or large. A national minimum wage was not meant to be a ceiling, but no one should earn below it.

Mr Thembinkosi Mkalipi, Acting Deputy Director General: Labour Policy and Industrial Relations, Department of Labour (DOL), said the submission raised important questions on what needed to be taken into consideration before implementing a national minimum wage. It was unfair to make a blanket statement about bargaining councils for employers in tradable and non-tradable goods sectors. Bargaining councils were not just an extension of agreements by big business to smaller ones. For example, contract cleaning in KwaZulu Natal through negotiation pay wages below the sectoral determination for contract cleaning in South Africa. There were even bargaining councils formed by small businesses themselves. It was important to capture all these differences before making a conclusion. There were 35 bargaining councils in the private sector. The statement about bargaining councils and the extension of agreements to non-members was not always the case.  Nothing by law prevents one from negotiating below the sectoral determination.  He asked how he can trust the research presented if there were such glaring omissions. People in a specific sector were considered knowledgeable about the factors that need to be taken into consideration in that sector, rather than a bureaucrat like himself merely extending agreements.

Mr Bagraim was happy with evidence presented. The real issue in South Africa was unemployment of around 35% and South Africa needs to create jobs. The national minimum wage will result in increased unemployment. The minimum wage will only suit the employed and not the unemployed. The remarks from Mr Mkalipi indicated that DOL does not agree with a national minimum wage, but sectoral determination and bargaining councils should set the desired minimum wage.

Mr Lufele said it was the social existence that determines the importance of a minimum wage and why it was long overdue, accompanied by high levels of poverty in South Africa which was higher than other countries. While there were claims in Prof Rankin that collective bargaining destroys jobs, yet 71% of workers were not unionised which means that their wages were determined by individual employers. If the workers ‘talk too much’, these workers lose their jobs. He wanted clarity that a national minimum wage (NMW) kills competition. The NMW was not the cause of unemployment and in previous submissions last week, the unions spelt out what need to be done to create employment in South Africa. Countries with a national minimum wage have low levels of unemployment. The NMW was informed by the material conditions that people in South Africa were faced with and must not be seen as a threat to job losses to company owners. He agreed with Prof Rankin to tax those making lucrative profits, earning millions of rands per year should be part of redistribution and not a substitute for national minimum wage.

Mr Ollis said that all the years he had been in parliament, he had never heard COSATU coming up with proposals to create jobs. He asked if there was a country in this world that had implemented the NMW with the levels of unemployment that South Africa had of around 35%. If there were not any such countries, implementing the NMW will be shooting in the dark as the unintended consequences were unknown. He asked if a move from collective bargaining to plant level negotiations with unions would be helpful.  He asked if the sectoral determination by the Minister of Labour, bargaining council’s agreements, extension of collective bargaining agreements and negotiated wages with employer bodies constituted a modified NMW. The NMW debate looks like it was about modifying the above into one.

Prof Rankin replied that he was very grateful for the contributions from the various stakeholders as very few students make such vibrant contributions when he teaches. He has not made his mind up in favour of NMW and this will be dependent on how things were structured as there were too many questions to be cleared up before implementing the NMW. He was not arguing against the right that people are allowed to struggle for rights, nor was he arguing that collective bargaining was bad, neither was he arguing that workers deserve a decent living wage. But wage floors have different effects on firms, in sectors and geographically. Hair dressing and cleaning jobs were not faced with global competition. The effect of NMW was likely to be lower because these were a non-tradable sector. This was going to matter for the NMW as the cost of NMW affects tradable sectors. This is because goods in such sectors can be substituted by imports. The reality was that SA operates in a global world and has to meet some competitiveness which affects a labour intensive growth trajectory. The NMW needs a transparent way of calculating what people need to live. He does not know any country with a NMW with the high unemployment rates SA has. In economic efficiency, a wage should be paid in value of production of an employee and this was easily decided at plant level. However, plant level negotiations will not be politically feasible in South Africa. SA has wages by sector, which does not make then NMWs.

Mr Moteka said Prof Rankin does not have to agree or disagree. It was important to deal with fear. There had been fear that SA would be in ashes when the ANC government took power. Likewise, when the Labour Relations Act came into effect. Even if the NMW were to be implemented, people living below the poverty levels would be uplifted. The fear issue was raised by those living in a comfort zone because it will take some money away from him as he makes money by ignoring the well being of those who help him make the money. Parliament will not fold its arms whilst others are earning slavery wages.  The NMW brings up those living below the living wage and cuts from those living beyond a luxury life. Taking from those above was taking from those living super human. It was not a matter of skills as there were people out there with the same skills. It was good to cut from the above than hitting the most vulnerable.

Mr Buthelezi said Prof Rankin submission made some interesting recommendations. However, he was not sure of its applicability to South Africa given that SA has strange taxes. The increase in social grants demands more from income earners. More so, many services in South Africa were provided by the state, which makes the tax suggestion complex to implement. Many of the contributions Prof Rankin made broadens the thinking on NMW.

Ms Mantashe asked Prof Rankin to assume that he was the Minister of Labour. She asked what he will do to close the gap between the poor and the rich in a quest to reduce poverty. If a NMW was to be put in place, at what level was he going to set it? Does he subscribe to those that say labour laws in this country were draconian. Since the dawn of democracy, business has never thought of the unemployed.

Mr Parks said COSATU has always proposed ways to create jobs during the budget cycle; hence it supports government projects on infrastructure development, tax evasion and corruption. Taxes were not just paid by corporates, there was VAT paid by even a child who buys a sweet, and various user charges.  Nobody admires poverty.

Ms Loliwe was concerned that Prof Rankin has not yet applied his mind on the NMW, because the Committee does not need individual views, but a perspective. 

Mr Ishamel said he gets worried when people speak about NMW as causing unemployment without looking at the principal objectives of the NMW. Employers themselves were to blame for low levels of productivity because they do not invest in design and technology. Many academicians and politicians had never worked on a production line; therefore they do not understand where the workers were coming from because they do not earn the same wage, yet they pay for the same price to buy basic commodities. Everyone who speaks for and against the NMW does not really understand the condition of workers. Businesses do not want NMW, labour legislation and collective bargaining. If directors in companies just cut a small fraction from their salaries, it will be enough to finance the NMW.  There will be more strikes, antagonism, revolts should the welfare of workers not be looked after. In comparing countries, it was important to look into factors such as the short sightedness of employers, the social economic conditions of workers, and the history of apartheid.

Mr Plouamma said Prof Rankin submission meant that the status quo must remain. He was a trade unionist, and he found that sometimes employers behave as if they are not citizens of this country. He gave the example of an employer who appealed a case in which an employee would have been granted R2 000 compensation, using more than R30 000 as legal fees. Employers were always trying to escape from those responsibilities that benefit workers. Employers have invested in wealth for generations, but employees just work for food or next to nothing. He started sleeping in a bed 10 years ago, but his father started working in 1977. The historical context was important for the NMW. Civil strife in countries was due to governments not addressing inequalities and going along with the status quo.

Mr America said the direction of the debate was becoming emotional, tainted with historical associations and the organisations from which one came. When he was a councillor at the City of Cape Town, he was shocked by the number of people who availed themselves for public works opportunities, willing to take any wage merely to have a living. Countries with the NMW such as Germany and US do not experience zero growth.  It was important to protect those without opportunities and the vulnerable in implementing the NMW.

Mr Aroun said there was nothing neutral in policy making. The international financial institutions were ambivalent in their support of NMW. The United Nations recommended that South Africa needed to shift away from export-led growth.  Industries and government do not utilise local industries in their procurement. Alternative energy policies and beneficiation will trickle down employment to other sectors.

Ms Loliwe commented that those present were in a workshop and its intention was not to label other participant’s ideas as correct or incorrect. The intention should not be to attack Prof Rankin.

The Chairperson said professors do not feel insulted. These debates reflected the ideological and political background with which one was associated.

The meeting was adjourned


 

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