On May 1, 6-million workers will get a pay increase to take them up to R20/hour, SA’s new national minimum wage (NMW). This will be a bonanza of up to R1,000 a month for many households, boosting consumer spending and, possibly, the nation’s GDP. It could also, by narrowing the pay gap between top and bottom earners, build trust and increase productivity.
On the other hand, since the new wage floor of R3,500/month will be above the pay levels of roughly 47% of the workforce (including close to 60% of clothing and furniture workers, 55% of construction workers and 48% of people in retail), the cost structure of significant parts of the economy will rise unless workers’ productivity rises too.
That companies may respond by reducing employee working hours or altering employment conditions to soften the impact of the new measures has been scotched by the National Minimum Wage Bill now before Parliament. It states that to do so would be an "unfair labour practice".
Marginal companies that cannot absorb the cost increase by finding more efficient ways of operating or that can’t pass the burden on to the consumer through higher prices face the option of retrenching workers or seeking an exemption from the impending law. Hopefully, for the sake of those few remaining pockets of low-cost, labour-intensive employment in SA, an efficient exemptions process will be established before May 1.
According to the bill, the labour minister must develop regulations setting out the manner in which exemptions must be made and the criteria that will be applied. With less than two months to go before the NMW takes effect, firms need clarity urgently on how the exemptions process will work. In its absence, employers’ failure to comply with statutory minimum wages, which is already at 50% in the clothing industry, is likely to rise.
The technical panel set up by President Cyril Ramaphosa, which recommended the NMW be set at R20/hour, wanted it introduced only in July 2019, to give companies plenty of time to adjust. Labour balked at that; the longer the introduction is delayed the more inflation will erode its real value. A compromise was finally reached in Nedlac, with business accepting the level of R20/hour from May 2018 and labour agreeing to conduct secret balloting prior to embarking on strikes.
However, the fact that the R20/hour is the result of a political compromise is deeply problematic for the economy. The whole point of the technical panel was to find a level for the minimum wage at which the negative impact of job losses would not exceed the positive gains for low-paid workers.
Unfortunately, it was unable to do this empirically. The figure of R20 was settled on partly because it is such a nice round number. So the implementation of the NMW is going to be a matter of trial and error.
This makes the exemptions process an important shock absorber. Only time will tell whether SA has found a short cut to addressing the plight of the working poor or whether the negotiators have sold the economy down the river, considering the potential for significant job losses.
Fortunately, confidence is on the rise and the economy is emerging from a cyclical trough. But economic growth remains fragile and SA’s investment case, shaky.
If the NMW delivers on its promise of reducing wage inequality and working poverty, Ramaphosa will be smiling all the way to the ballot box. But he can’t afford to bungle its practical implementation. The devil will be in the detail.
• Bisseker is Financial Mail assistant editor.
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