Economists said that the economy has not recovered enough to allow for substantial increase in the National Minimum Wage (NMW).
This follows “The Mercury” reporting that Cosatu made a submission to the National Minimum Wage Commission for an CPI inflation plus 3 percent increase in the NWU.
Waldo Krugell, an economics professor at North-West University said that StatsSA estimates a CPI inflation rate per income decile and with the latest data, August 2023 to August 2024 the inflation rate for the poorest decile is 4.5%.
“Earlier this year the minimum wage increased by 8.5%, which was above the average inflation rate of 6%.They are asking this at a time when there is a lot of positivity about our economic prospects but households and businesses have not yet recovered from a few very hard years. A significantly higher minimum wage may hurt employment in a number of ways.”
Krugell added that studies show that the impact varies between sectors, or according to the size of the company that has to pay the minimum wage.
“In the agricultural sector, rising minimum wages led to job losses on small farms, but large farmers employed more unskilled workers. In retail, there were no job losses at large or small businesses. For domestic workers it led to reduced hours.There is also work that shows even when rising minimum wages do not lead to job losses, it deters new job creation. More jobs is what South Africa desperately needs, but unions only represent people who already have jobs.”
Krugell said that a final point is that inflation +3% is the sort of wage claim that keeps the MPC awake at night. “They would like to see our inflation and wage expectations anchored at the midpoint of the inflation target band. A wage increase like this makes them think that inflation in South Africa is systemically high and interest rates should be too.”
Professor Irrshad Kaseeram, from the University of Zululand's Economics Department, said that Wage increases above inflation are warranted only if productivity productivity growth is 3%.
Kaseeram added that it is true unskilled workers are facing a higher food, energy (transport) and utilities [administrative] price inflation which they rationally want to be compensated for.
“Additionally most of out intermediate inputs are imported a weak rand is highly inflationary for a high percentage of type type of price pressures are passed on to consumers.
The catch 22 situation is that it reduces the semi and unskilled workers chance from finding jobs over time because of huge cost to firms of employing them.”
The Mercury