The double-edged sword of the minimum wage

Over the past few weeks, the labour movement has scored a symbolic victory with the publication of the latest amendments to the minimum wage in the country.

The minimum wage regime, which was formalised in 2019, represented a significant win for workers at the low end of the income scale whose foothold on the job market is characterised by a greater sense of fragility.

Read: Understanding the National Minimum Wage Act [Jan 2019]

In its initial iteration, the minimum wage sought to provide guidance on how employers across different sectors should be paying compensation for a worker’s contribution.

The previous model of fractured sectoral determinations led to an inconsistency in application that reduced each worker’s chance at a fair wage to the lottery of which sector they happened to be classified under.

Prior to the implementation of the minimum wage regime, the view was that the open-ended question of what amounted to fair compensation left too much power to employers who could bargain their way down the wage curve safe in the knowledge that workers had no objective reference points to compare the offers made to them.

In the absence of collective bargaining structures, workers would have to map their own sense of desperation for an opportunity to work against the reality that the unemployment crisis in the country meant that employers would eventually find someone willing to accept whatever wage was on offer.

For workers whose skills set meant they could only compete for entry-level and clerical jobs, the low barriers to access meant the intensity of competition for the few jobs on offer completely eroded the bargaining power of individual workers.

‘Government overreach’?

The implementation of the minimum wage regime naturally attracted opposition from free market fundamentalists who saw it as yet another illustration of government overreach in the labour markets.

The rationale underpinning this view was the idea that workers should be free to negotiate on their own and when the employer’s need for labour and the worker’s quest for a job coincided, a meeting of the minds would materialise that created an employment relationship.

What this view omitted to deliberate on was the reality that South Africa’s history of labour relations – especially at the low-wage end of the spectrum – had a history of exploitative conduct that needed an element of correction.

While the negotiation of a wage down the payment scale is not reflective of the indentured labour practices of yesteryear, the lack of bargaining power in the hands of the employees meant they had little recourse against employers whose wage offers were akin to exploitation.

The secondary argument was that the implementation of a wage floor would not only interfere with a private contract relationship but would also lead to a loss of jobs as employers opted out of paying what they regarded as a wage that was beyond their affordability.

Since 2019, various attempts at assessing the impact of the minimum wage on the employment patterns and the overall labour market have yielded results that are, at best, debatable.

What has become less contested is the reality that workers on the minimum wage are still subjected to job access costs like transport, which consume a disproportionately high portion of their wages.

Read:
Rising food prices hit poor people the hardest
Can one live off the minimum wage in SA?

Over the past few years, as inflation and the cost of living have acutely spiked prices of basic goods and services that low-income workers rely on, the value of the wage has declined.

The inflationary adjustment to the minimum wage therefore compensates workers for this dilutive effect.

The curious question for labour market observers remains the issue of the quantum of the adjustments.

In the past two years the adjustment to the general minimum wage has been 9.6% for 2023 and 8.5% for 2024.

These increases are notable for their range relative to general inflation which has finally cooled off after the post-pandemic trampoline effect and the effects of geopolitical conflicts.

This might revive the arguments of sceptics that government’s continued intervention is detrimental to the prospects of workers as this increase in employment costs that outstrips inflation will lead some employers to evaluate their capacity to maintain their wages especially in cases where they are unable to pass on the incremental costs to customers.

Compliance avoidance

The more difficult problem relates to the question of how compliance with the law can still be avoided by employers who game the system.

Employers who trade on the desperation of workers in far-flung areas, where the law is regarded more as elusive rather than accessible, can get away with ignoring the wage floor safe in the knowledge that workers will accept what little they get in order to stave off poverty.

In sectors where there are high incidences of employing foreign workers, the tendency to underpay is escalated if such foreign workers consider themselves at risk of falling foul of immigration and citizenship laws.

When workers find themselves in this conundrum, what ought to be a contract based on the need to prevent exploitation and promote fair wage practices gets superseded by the morally dubious contract of trading a wage below the floor in exchange for maintaining a foothold on the economic bandwagon and also avoiding undesired exposure to immigration rules.

The country’s longstanding problem in addressing compliance with laws, immigration patterns and loopholes in regulations, means that such incidences will persist for many moons to come.