Hikes to the national minimum wage will serve to increase poverty

National Minimum Wage (NMW) decisions should be made in the best interests of all the citizens of South Africa, says the writer.

National Minimum Wage (NMW) decisions should be made in the best interests of all the citizens of South Africa, says the writer.

Published Jan 15, 2024


Derryn Brigg

The proposed above-inflation national minimum wage undermines the central purpose of the National Minimum Wage Act, which is to advance economic development and social justice.

National Minimum Wage (NMW) decisions should be made in the best interests of all the citizens of South Africa. But by hiking the NMW above the level of the Consumer Price Index, the commission has in effect favoured an estimated 3.8 million citizens who are now set to benefit from increases beyond the purpose of a national minimum wage. By contrast, 7.8 million unemployed persons would as a result have fewer employment opportunities due to the impact on the economy of an above-inflation increase.

Our economy’s ability to create employment and reduce poverty is in a dire state, deteriorating with every poor decision. The Constitution seeks to improve the quality of life of all citizens and free the potential of each person; it also requires that every citizen must be equally protected by our laws. It is the Cape Chamber’s view that the proposed above-inflation increase fails to protect job-seekers who require economic growth if they are to become wage earners.

More decent jobs are clearly better than fewer jobs.

“Repeatedly increasing NMW above CPI increases poverty and unemployment, and the arguments for the contrary are flawed.

“While econometric models may show an initial boost in expenditure which lifts GDP and a few retail jobs, this short-term increase is inevitably followed by a long-term reduction in productivity/competitiveness. This in turn leads to fewer firms surviving (jobs lost) and increased automation (job losses) in those that do survive.

These job losses drive unemployment and poverty levels higher and higher.

The so-called research papers that argue that NMW can increase above CPI, all qualify their statements by demanding that productivity is improved elsewhere. Arguing there is no harmful impact if other actions compensate for the loss in productivity is a confession that the effects are, in fact, negative,” the Chamber submission says.

We therefore believe the government needs to prioritise efforts to absorb people into the labour market, rather than supporting above-inflation increases that may lead to job losses.

Unemployment is a humanitarian crisis that demands bold and long-term economic intervention, not short-term political expediency.

While the purpose of this NMW Act is to advance both economic development and social justice, the commission’s current structure is not conducive to the required measured approach. The commission consists of 10 persons representing citizens/labour vs just three business representatives.

This governance issue needs to be addressed to allow for decision-making in the best interest of all our citizens.

We believe the national minimum wage commission is in breach of its mandate to act in the best interests of all South Africans. The disingenuous addition of an unmandated goal – that “the value of the national minimum wage does not decline relative to the median wage” – undermines the purpose statement of the act.

The commission’s flawed rationale continues in its written justification for the proposed increase: “In practice, achieving this target requires that the commission increase the value of the minimum wage gradually over time in real terms (that is, relative to CPI).”

It is the Cape Chamber’s view that the commission’s bias in favour of the already employed is not surprising if one looks at the commission structure.

The Chamber therefore calls on the Commission to revert to:

• Pursuing the purpose of the NMW act, strictly as mandated.

• 2024 and subsequent annual NMW increases not to exceed CPI.

• The composition of the commission to be restructured to balance the views of business, all citizens seeking employment and all those currently employed.

In summary, it is hard to escape the conclusion that the latest NMW proposal is a thinly veiled attempt to curry favour with potential voters ahead of this year’s national election. Political leaders regularly dish up fiction rather than facts to further political agendas, such as assertion by President Cyril Ramaphosa that social grants may be scrapped should the ANC not attain its majority vote. In fact both of the ANC’s main rivals, the DA and EFF, intend bolstering social grants, not abolishing them.

The NMW debate is another example where inconvenient truth is a casualty of convenience. We need wage increases that will bring maximum benefit by stimulating business activity and creating jobs.

* Brigg is the Deputy President of the Cape Chamber of Commerce & Industry.

Cape Times