Can we afford a national minimum wage?

As thousands of matriculants and university students sit down to write their final exams, I bet they’re thinking about the day they can begin making their own way in the world.

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I well remember the thrill of the first day at my first job. I was paid a pittance, but buying groceries with the money I had earned was liberating. Currently, two-thirds of South Africa’s workforce is unable to do that. Cosatu argues that a national minimum wage will contribute towards not only closing the inequality gap, but creating employment. Deputy-president Cyril Ramaphosa is keen to start the process, and has proposed a committee that would include six cabinet ministers, to guide the process.

I pay my domestic worker a salary which is the average in Randburg (where I live). To pay her what Zwelinzima Vavi suggests is a ‘living wage’ means her salary will increase by 40%!

I don’t believe the value I’ll receive in exchange justifies the expense. A domestic worker will soon become a luxury people cannot afford. The argument for a national minimum wage goes something like this: by lifting the wage floor, spending will increase, thus stimulating the industry. But if labour prices go up, employers will either have to do with fewer workers (as we have seen in the mining and agricultural sector after the recent wage hikes) or, in order to absorb the higher wage bill, increase the price of their goods, thereby lowering the buying power of those same labourers.It sounds as if workers and the unemployed lose either way.

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The metaphor of increasing the size of the cake instead of cutting smaller slices is often used, but it bears repeating: we need to grow the economy, otherwise no-one gains. So, if a national minimum wage is not the answer, what is? Addressing these issues is crucial for SA’s future. History has shown us that the more unequal a country’s citizens, the higher the risk of social unrest.

Worldwide, countries struggle to simultaneously address both unemployment and the inequality gap. China managed to increase the average net worth of a household by 17% between 2010 and 2012, to $71 000. In China’s situation, market-orientated reforms lead to increased productivity which, combined with increased privatisation and less government control, saw its economy grow. However, inequality grew at the same time, with about a third of the country’s wealth now concentrated in the hands of 1% of its citizens.

South Africa, with its increased state control, is in danger of focusing too much on inequality, which might come at the cost of economic growth and ultimately, the poorest of the poor. One thing is certain. A lot more thought needs to go into the issue of a national minimum wage.

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