Picture:  DAILY DISPATCH
Current legislation already provides for increased minimum wages in all sectors if the government believes this can be done without job losses, says the writer. Picture: DAILY DISPATCH

THE government looks set to introduce a national minimum wage this year. This move enjoys strong support from the trade unions and will benefit the governing party in the local government elections. But many commentators fear it could lead to job losses, worsening SA’s high rate of unemployment.

SA already has minimum wages that differ by sector and region. Thus minimum wages for domestic and farm workers are lower than in manufacturing.

Workers in rural areas are paid less than those living in cities.

Logically, a single national minimum wage will have to at least match the current highest sectoral minimum wage. It will be unacceptable to cut the minimum in the higher-paying sectors. This means minimum wages in the lowest-paying sectors could more than double.

Those who support a national minimum wage argue it will reduce inequality. This is true only if employment is unaffected. If employers cut jobs because they must pay more than they can afford, inequality may worsen. Benefits for those on the new minimum wage will come at the cost of lost jobs for others.

Supporters of higher minimum wages claim they boost growth by increasing the consumption spending of low-wage earners. But SA needs to increase output, not consumption. We already spend almost R200bn more than we produce each year. A higher minimum wage may boost consumption with little increase in output, so imports will rise. Our current account deficit will then grow, increasing our reliance on foreign capital inflows.

Supporters and opponents of a national minimum wage cite contradictory international evidence to support their views. Measuring the effect of new minimum wages is difficult as what would have happened without them cannot be assessed.

Where employment rose alongside increased minimum wages, this could be because the economy was already growing fast. Employment might then have risen faster without the increase.

Proponents of a national minimum wage often point to Brazil, where a 75% real increase in the minimum wage in the past decade was accompanied by falling unemployment. But the minimum wage in Brazil was phased in over a period when there were also substantial education gains. This meant as productivity rose, workers could access higher-paying jobs.

The introduction of the new national minimum wage in SA will happen overnight. In some sectors, the minimum wage will increase instantly by more than what Brazil achieved in 10 years. Our education system cannot possibly improve fast enough to transform worker output to match this. The resultant rise in wages may, therefore, be unaffordable to many businesses. They will respond by cutting jobs.

It is unclear what economic grounds justify a departure from the current arrangement in which minimum wages reflect the circumstances of different sectors and regions. The skills requirements for workers in motor manufacturing differ markedly from those employed in domestic service. So this system was introduced because the government believed higher minimum wages overall would damage employment in many areas and elements of the workforce.

Concerned about youth unemployment, the government faced down union opposition and introduced a special youth wage subsidy because it believed current wage levels prevent young workers from getting their first jobs.

The government should proceed with caution. Current legislation already provides for increased minimum wages in all sectors if the government believes this can be done without job losses. If, however, there are concerns about job losses, the law grants the government the flexibility to raise wages more gradually in vulnerable sectors to test the effect on employment levels.

There is no example of a country with unemployment as high as ours that has raised minimum wages considerably. It is also very risky to raise wages in a stagnant economy.

A national minimum wage may have short-term popular appeal, but if it triggers large job losses, the social and political consequences could be tragic for the very people expecting to benefit from the move.

• Keeton is with the economics department at Rhodes University