South Africa: U.S. Firms Express Concern Over Imminent National Minimum Wage

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By Edwin Naidu

Aug. 10—The American Chamber of Commerce has come out strongly against the attempts of South African lawmakers to implement a national minimum wage and has submitted recommendations it hopes the government will consider if the minimum wage is actually put into effect.

In a recent address, South Africa’s Deputy President Cyril Ramaphosa said that the minimum wage is necessary to improve the lives of workers, reduce inequality, lift people out of poverty and fuel economic growth and job creation.

“The [minimum wage] proposals aim to transform the apartheid wage structure and introduce a coherent wage solidarity policy,” Ramaphosa said.

‘South Africans Need Jobs'

According to Carol O’Brien, executive director of the American Chamber of Commerce in Johannesburg, the view that a national minimum wage is an appropriate policy tool to combat unemployment is misleading and fallacious.

“South Africans need jobs,” O'Brien said, “not an increase in the minimum wage which will effectively reward those who are employed and lock out the unemployed.”

Scarce skills must be considered when setting a national minimum wage, O’Brien told Bloomberg BNA. In sectors where a scarcity of skills exists, the national minimum wage must not become a deterrent to initiatives addressing the skills gap. To avoid mass job losses, there must be an appeal mechanism to determine if there is an economic or business case to be made for temporarily waiving or exempting altogether from the national minimum wage a business or group of businesses that might otherwise need to cut jobs.

Recommendations

AmCham members have made recommendations to the government about ways to minimize the negative effects of the minimum wage, O'Brien told Bloomberg BNA. These include:

• There should be an assessment of the number of workers who would be affected by the minimum wage and of how many jobs might be put at risk.

• There should be a comprehensive economic assessment of the likely effects of implementing a national minimum wage.

• The minimum wage must be based on gross, rather than net, compensation.

• The national minimum wage must be adjustable to take into account regional and sectoral differences.

 

O’Brien said that employers with 500 or fewer employees should be exempted from the minimum wage requirement and that the minimum wage should be phased in over two years for large enterprises and seven years for mid-sized enterprises.

Reservations

While politicians and the labor movement are in favor of a national minimum wage, local business is concerned about the implications.

South African Chamber of Commerce and Industry consultant Andrew Layman told Parliament in a presentation in June that it is not a good time for implementing a basic minimum wage because the country’s goal of accelerated economic growth requires focus without distractions. Layman said that the existing mechanisms to guarantee fair wages (determinations and legislation) are sufficient and that there are already too many impediments to employment in South Africa.

Layman argued that South Africa’s prospects are not helped by red tape affecting business, growing wage demands, adversarial employer/employee relations and the strikes and demonstrations that plague many sectors of the economy.

The chamber studied 16 countries that had implemented mandatory minimum wages, of which six saw a positive effect on the economy and employment, another six saw negative effects and the remaining four had neutral outcomes.

In Brazil between 2002 and 2010, for example, 17 million new jobs were created, unemployment dropped from 11.5 percent to 6.1 percent and an estimated 20 million people were lifted out of poverty. In Thailand, however, an 8-percent increase in productivity was required to mitigate the extra employment costs, inflation increased by 1 percent, GDP growth declined by 1.7 percent and employment fell by 5.5 percent.

Union Response

Woody Aroun, parliamentary officer of the National Union of Metalworkers of South Africa, invoked the Freedom Charter, the antiapartheid document drafted by the African National Congress and its political allies in 1955, which demands that men and women of all races receive equal pay for equal work, that the workweek be no longer than 40 hours and that there be a national minimum wage, paid annual leave, sick leave for all workers and maternity leave on full pay for all working mothers.

South Africa's unemployment rate is currently 35 percent and getting worse, Aroun said, more people, approximately 20 percent of the population, are living below the food poverty line of 300 rand a month, and 70 percent of workers in the country have their wages determined by their employer.

“The apartheid wage structure remains intact,” Aroun said. “In 2013, half of South Africa’s workers received less than 3,033 rand [$245] a month, while the national average salary is 15,000 rand [$1209] a month,” Aroun said.

The Congress of South African Trade Unions, the Federation of Unions of South Africa and the National Council of Trade Unions made a joint presentation calling for a national minimum wage, social protection and an economic policy that addresses inherited inequality and poverty in the labor market.

Consultations about the national minimum wage by a government task force are expected to continue until a report is given to the labor ministry. The task force is considering whether the national minimum wage should provide for sector-specific or business entity exclusions and how the wage would be enforced, among other issues.

To contact the reporter on this story: Edwin Naidu in Johannesburg at correspondents@bna.com

To contact the editor responsible for this story: Rick Vollmar at rvollmar@bna.com

For more information on South African HR law and regulation, see the South Africa primer.