Herman Mashaba
A minimum wage discussion paper released by the Durban Chamber of Commerce and Industry (DCCI) outlined that minimum wage laws posed a significant inflationary risk to the macroeconomy, but acknowledged that sectoral minimum wages might yield positive results.
This inflationary risk and decreased consumption demand from the private sector did not deliver a convincing case for a national minimum wage regime, the paper concluded.
However, it found that outcomes of a national minimum wage policy on employment levels were highly dependent on the characteristics of the local labour market.
South African studies of the effects of minimum wages were confined to the agricultural sector and provided an argument against a minimum wage, as it had the propensity to increase unemployment and, in some cases, decrease the number of hours worked per individual.
South African entrepreneur and businessperson Herman Mashaba this week argued passionately against the introduction of a blanket minimum wage because of the negative effect it would have on small and medium-sized enterprises (SMEs) and, consequently, the development and growth of new businesses.
“Do we really want to trust in large companies for our growth?” he asked at the launch of an SME supplier development initiative, in Sandton, on Wednesday.
South Africa should rather increase employment in the lower echelons and SMEs should form the basis of growth in the country. Government must establish an enabling environment for small business, he averred.
Gauteng Finance MEC Barbara Creecy highlighted that SMEs in many economies across the world provided employment to between 50% and 90% of people and delivered between 20% and 50% of gross domestic product.
The Gauteng government would support SME development as an important initiative, she said at the SME supplier development initiative launch.
“In a competitive labour market, according to economic theory, equilibrium wages are set where workers earn their own marginal product. A minimum wage acts as an artificial price floor, which will have the effect of increasing the earnings of low-wage workers and, consequently, firms will choose not to employ as many workers at the new increased wage rate, as this would imply that firms would pay workers more than their marginal product,” the DCCI noted.
In January, US free market economist and Carthage College economics professor Yuri Maltsev highlighted that rigid labour markets, high minimum wages and prescriptive labour laws excluded the youth and low-skilled workers from the economy, driving up unemployment.
Small companies often competed in terms of price against larger companies and inflating their operational costs would lead to fewer SMEs being created and fewer growing into medium and larger companies, as their ability to compete in terms of price was eroded.
“The knee-jerk reaction of the private sector to the implementation of a minimum wage, especially among SMEs, is to retrench staff. However, it is unlikely that South Africa’s relatively rigid labour legislation will allow for this and most companies will explore increasing their prices, improving productivity and redistributing resources before retrenching staff,” the DCCI found.
The DCCI paper highlighted that minimum wages may increase formal employment, but reduced the use of temporary staff and led to a move away from labour-intensive models to capital-intensive models, especially in agriculture.
Younger people were less likely to find employment after a minimum wage increase and the length of time spent unemployed increased as a result, it found.