A blanket national minimum wage may do more harm than good in South Africa, where youth unemployment levels are high and financial stress discourages businesses from creating jobs.
Such stipulations may have positive effects in developed countries, but the results may not be as good in countries with high youth unemployment rates, believes youth development agency Afrika Tikkun Services.
South Africa is one of these countries, with the unemployment rate among those aged 25 to 34 at 39.8 percent in the second quarter of this year; this rate did decrease by 0.9% from the first quarter, but there are still three million unemployed youth in the country.
The national minimum wage was hiked by 9.6 percent in March, taking it to R25,42 per hour. The National Minimum Wage (NMW) Commission has called for public inputs into possible adjustments to this wage in 2024.
Afrika Tikkun Services, which specialised in corporate transformation by connecting skilled black youths into the workplace, is, however, calling for labour and political leaders to focus on balancing minimum wage increases with their potential impacts on unemployment. Even though the official unemployment rate decreased by 0.3 percent in Q2, there were still 200,000 job losses in some of the country’s major industries.
Chief executive Onyi Nwaneri says employers are already under pressure to hike their wage bills as inflation pushes workers beyond the minimum wage bracket to negotiate for better pay to match the rising cost of living. Significant wage increases could therefore discourage employers, in particular Small and Medium Enterprises (SMEs), from creating employment.
“As the possibility of raising the NMW to match the rising cost of living arises, South Africa must prioritise the objective of growing its employment rate, or risk further economic vulnerabilities.”
While the agency applauds the country’s labour regulations – which seek to protect worker's rights, it calls for a policy framework that ends the cycle of unproductive, unskilled labour and unemployment in the country. Unproductive workforces destroy the ability of companies to create wealth and therefore more jobs.
Studies have shown that the blanket minimum wage has historically been a net positive in developed countries, but Nwaneri says it could have “unintended consequences” in countries with high youth unemployment rates, like South Africa.
“It is essential to consider all perspectives when discussing policy changes that affect the economy.”
The link between minimum wage and unemployment in South Africa “must be investigated” as increasing the NMW can contribute to higher labour costs which can have a significant impact on small to medium businesses. Finding a balance, however, is complex.
“Raising minimum wage should be a balancing act that takes into account the need to reduce poverty and inequality in the light of high inflation rates, but still swings the bigger picture and prevents a situation where small businesses, which are the backbone of the economy, can no longer afford labour costs.
“If we don't find a balance between addressing economic challenges and the social impact of inflation, the problem we are trying to solve will remain a pipe dream – the triple problem of poverty, inequality, and unemployment will remain.”
Citing Thomas Edison, Nwaneri says insanity is doing the same thing over and over again and expecting a different result.
“It is time we looked at things holistically and differently with a view to trial a new and balanced approach.”
To address valid concerns about NMW increases discouraging small businesses and impeding job creation, she states that it is important to consider implementing minimum wage policies alongside other measures to support businesses. One of the most effective measures which can largely be credited for the survival of the economy during the Covid-19 pandemic, is providing tax incentives or access to affordable loans and training programs. These measures could help alleviate the burden on smaller enterprises while still ensuring fair wages for workers.
“NMW should not be increased such that it risks exacerbating unemployment. South Africa has the highest youth unemployment rate in the world, and significant wage increases will discourage employers, in particular SMEs, from creating employment. We don't want labour to be unaffordable by those who need it most and who are in a position to create it the most."
The decision to raise the NMW, and by how much, should also be informed by what we know about the long-term impact of similar policies around the world. It is important to note, too, the lack of research on the impact on South Africa's minimum wage policies on unemployment rates and economic growth against the backdrop of long-existing challenges in those areas.
Therefore, Nwaneri says, policymakers should take a comprehensive approach that includes supporting job creation, entrepreneurship, and other labour market policies to address high youth unemployment rates effectively.
NMW Commission Adriaan van der Walt says the written comments or representations concerning a possible minimum wage increase will be considered by the Commission before it publishes its annual report and recommendations on the annual review of the national minimum wage later this year.
The public has until September 8 to submit their comments.
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