Noncompliance with SA’s national minimum wage regime, first introduced seven years ago, has gone up with the policy running the risk of being merely an “aspirational” tool to level the playing field, according to a study conducted by University of Cape Town academics.
The study, done on behalf of the National Minimum Wage Commission, was conducted by Haroon Bhorat, Benjamin Stanwix and Timothy Köhler and examined the short-term labour market effects of the March 2024 increase in the national minimum wage, which was the largest adjustment in real terms since the introduction of the policy in 2019.
The national minimum wage was last year set at R27.58 per hour. The study found evidence that is suggestive of partial compliance, where a subset of employers respond to the higher national minimum wage by increasing wages towards but not all the way up to the national minimum wage.
Employers have also responded to the national minimum wage by reducing working hours of staffers.
“The national minimum wage is a key progressive policy in SA, but it is also constrained by the country’s economic environment, which limits what it can achieve in isolation. Relying too heavily on the national minimum wage as the primary tool for improving the economic welfare of workers does contain a level of inherent risk,” the report reads.
“More specifically, consistent above-inflation increases may not be able to consistently raise wages without some form of trade-off. An obvious concern in SA is around the potentially negative effects on employment and employment growth, but there is also the possibility of increasing noncompliance, where higher minimum wages do not translate into equivalent increases in workers’ wages.
“Indeed, the effects of the latest national minimum wage increase are already muted by the fact that noncompliance has gone up, and many workers’ wages did not change in response to the new level. This risks turning the national minimum wage into an aspirational policy only adhered to by a subset of employers, rather than a binding wage floor for all workers across the country.”
The study found that the 2024 national minimum wage increase resulted in a relatively small degree of job loss. The report further found that the new national minimum wage had a clear positive effect on the real hourly wages of sub-minimum wage workers, of about 19%.
However, the report found evidence that some employers reduced working hours to absorb the wage increase.
“We find consistent evidence of a negative effect on the working hours of low-wage workers, similar in magnitude to the effect on employment. This suggests that some employers reduced working hours to absorb the wage increase,” it said.
“As with the measured employment changes, the magnitude of the reduction in working hours is considerably smaller (2.2%-3.9%) than the increase in real hourly wages (19%-27%). Hence, the overall effect on covered workers who remained employed is ‘net’ positive, only partially offset by slightly lower working hours.”
For 2025, the National Minimum Wage Commission, housed under the department of employment & labour, has recommended an increase of consumer price inflation plus 1.5%.
The National Employers Association of SA (Neasa), in its submissions to the commission on Tuesday, said the mooted increase was unaffordable and would destroy small businesses.
“It would appear that the investigation into the adjustments to the national minimum wage is merely a theoretical exercise that does not take cognisance of the inputs of stakeholders. Objectively looked at, the commission should not have recommended an increase to the national minimum wage. The implication of this is that the commission simply ignores comments from the public, rendering the whole exercise as having no practical importance,” Neasa said.
“Should the minimum wage be increased as proposed, the resultant effect will be a 4.4% increase to the current wage rate. This means the new current national minimum wage for a 45-hour work week for a general worker will increase to about R5,610.41 per month. This becomes an untenable arrangement for microbusinesses and start-ups.
“Neasa recognises the government’s unwillingness to shift its policy stance with regards to the national minimum wage. Understandably, the commission cannot do much about this. Neasa reiterates its rejection of an imposed national minimum wage. It is for the government to change its policy direction regarding the national minimum wage and rather focus on economic growth and job creation.”
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