Minimum wage

Technology and minimum wages are likely to change the mix of capital and labour in industry

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Friedrich Kreuser, Neil Rankin on 20 June 2017

While technology is making capital cheaper, policies like the national minimum wage will make labour more expensive. What does this mean for the choices firms make in terms of labour and capital inputs? This research shows that higher prices for labour will result in lower demand for labour, making job creation more difficult. Low-skilled and high-skilled labour are substitutes – higher wages for low-skilled workers will encourage firms to employ more high-skilled workers and become more skill intensive.

Predicting the impact of a national minimum wage: are the general equilibrium models up to the task?

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Gilad Isaacs, Servaas Storm on 11 August 2016

This article analyses whether computable general equilibrium (CGE) models are suitable for projecting the likely consequences of implementing a national minimum wage. Referring to modelling exercises undertaken by the National Treasury and the Development Policy Research Unit (DPRU), it shows that their projection of a strongly negative impact on employment and other macroeconomic indicators is a direct result of the architecture and assumptions of these models. By design these models preclude alternative outcomes; this renders them rather unsuitable as guides to policymaking.

Do low-paid workers’ wage increases raise unemployment – and is this relevant for the minimum wage debate?

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Dieter von Fintel on 30 March 2016

Increasing the wages of workers in the bottom half of the wage distribution contributes less to regional unemployment than increasing the wages of better-paid workers. The wages of the worst-paid – who live in regions of low union and large-firm concentration – play almost no role in unemployment. Collective bargaining arrangements appear to explain these differences. This phenomenon may soften the negative impact of a national minimum wage on employment in the short run, but might make matters worse in the longer run.

Labour and unemployment in South Africa: towards a ‘grand bargain’

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Ravi Kanbur on 7 October 2015

The problematics of the situation in South Africa are clear: high unemployment, high inequality and low growth, combined with a lack of consensus on what to do. It might be more fruitful to think in ‘grand bargain’ terms: a package of policies that are intended to balance opposing perspectives whose differences cannot be resolved through technical debate – and to set short-term political-economic imperatives against the longer time horizon needed for policy interventions to address deep structural legacies

A national minimum wage: moving the debate forward?

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Frederick Fourie, Pippa Green on 29 June 2015

The public debate on a national minimum wage sometimes appears to occur in different universes. Two recent contributions to Econ3x3 may help to take the debate forward. This article analyses and contrasts these views and finds that, though they emphasise (and underplay) different aspects, the differences may not be insurmountable – especially once one recognises that the proposals apply to different time frames. [A shorter version of this article appeared as an op-ed article in Business Day on 25 June 2015. See references.]

The national minimum wage debate: looking beyond a narrow focus on labour markets

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Gilad Isaacs, Ben Fine on 17 March 2015

Most contributions to the debate on a national minimum wage adopt a narrow view of labour markets and accept that the structure of the economy will remain essentially as it is. We question both of these assumptions. Further, we argue that a national minimum wage, at a level to be determined through careful research, must be part of a well-designed package of longer-term policy reforms that look beyond the labour market and support employment growth through investment.

What is at issue in the minimum wage debate?

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Jeremy Seekings, Nicoli Nattrass on 20 January 2015

The debate about implementing a national minimum wage obscures the key point, which is the level at which a national minimum wage should be set. A national minimum wage at a much higher level than the sectoral minimum wages currently set by the Employment Conditions Commission or agreed upon by unions under the Labour Relations Act is likely to result in job destruction, especially in the tradable sectors, with the result that poverty might be increased rather than reduced.

Enforcement and compliance: the case of minimum wages and mandatory contracts for domestic workers

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Taryn Dinkelman, Vimal Ranchhod, Clare Hofmeyr on 14 April 2014

What happens when a previously unregulated labour market is regulated? After the introduction of minimum wages and mandatory employment contracts for domestic workers, wages increased markedly while neither employment nor hours worked declined; some formalisation of working conditions also occurred. All these occurred despite a lack of monitoring and enforcement, suggesting that such actions (often costly) are not essential for regulation to have a significant impact on informal employment conditions, at least in the short run.

The impact of sectoral minimum wage laws in South Africa

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Haroon Bhorat, Natasha Mayet on 10 June 2013

The introduction of minimum wage laws in five non-agricultural sectors has not been associated with a significant loss in employment in the years following their promulgation – a period when most sectors also saw a significant increase in real hourly wages. Indeed, several sectors recorded an increase in employment. However, in some sectors there is evidence of a relatively small reduction in the hours worked by employees. On the whole, the effects of minimum wages are varied.

Minimum wages and compliance in South African agriculture

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Benjamin Stanwix on 22 January 2013

Average wages in agriculture have risen substantially in all provinces since the introduction of minimum wages in 2003 - the gap between the actual and the minimum wage has declined significantly. Compliance has been highest in the Western Cape and Gauteng, where average agricultural wages were close to or above the minimum wage even before it was introduced and wages have continued to rise thereafter. Although enforcement appears to have had a limited impact due in part to limited penalties, more effective inspection would be an important way to improve compliance.