New National Minimum Wage: Both futile and destructive

By Gerhard Papenfus

On Friday, 2 February 2024, the Minister of Employment and Labour announced an 8.5% (CPI plus 3%) increase to the National Minimum Wage (NMW). In doing so, the Minister acted on the advice and recommendations of the National Minimum Wage Commission (NMWC).

The NMWC ignored the input of numerous business institutions and trade unions who warned of the dire consequences of implementing further increases, the calls for the scrapping of the NMW, and simply proceeded with recommending the implementation of its own original proposals. The manner in which the NMWC reached its conclusion, once again, illustrated the futility of the public participation process leading up to their eventual recommendation.

This minimum wage is an arrangement that prevents anyone from being employed unless he can find an employer who is prepared to pay him a wage, not a wage that he is demanding, but which the Government determines he must receive. This is an arrangement that dictates that unless a jobseeker can find such an employer, he will be doomed to a life of abject poverty.

 The minimum wage arrangement ignores the fact that:

  • employers, without exception, only pay wages that they can afford and which they want to pay. Establishing a minimum wage does not change that;
  • for those employers who are already paying more than the minimum wage, this arrangement is entirely irrelevant; and
  • those employers who cannot afford it, will revert to alternative arrangements: reduced working hours, restructuring, reconsidering the need for lower-paid employees, and even retrenchments. Some will merely ‘fly under the radar’, breaking the law regardless of the risk. 

These are simply the facts and state intervention will never change it. The influence of market powers is too strong, and to the extent that the state ‘succeeds’ in its interference, it will only lead to increased unemployment, the biggest driver of inequality in South Africa.

 The NMWC and the Minister also lose sight of the fact that:

  • a job, even a low-paying job, is better than any social relief that Government has to offer; and that
  • being unemployed, no matter from which angle it is viewed, is a terrible form of abuse to subject any individual to. 

South Africa, with a population of approximately 62 million, and growing fast:

  • is burdened by the highest unemployment rate in the world* - close to 42% or nearly 12 million people (which is the expanded, but more accurate figure);

*That is not taking into account complete failed states where statistics on unemployment are no longer recorded.

  • is also burdened with a situation where almost half of its population depends either fully or partially on some form of a grant; and
  • has only 16 million people that are employed, of which only 5.5 million pay tax. 

This is unsustainable. Our current debt burden, borrowing cost and budget deficit simply dictate that the entire scheme is doomed to fail and will eventually implode.

The only solution to this is a growing economy, robust labour market arrangements and a new approach to the nobility of work, a dispensation in which all forms of entitlement and expectation of hand-outs are not only discredited, but rooted out. This, unfortunately, is an outcome this socialist government will simply be incapable of delivering.

Gerhard Papenfus is the Chief Executive of the National Employers' Association of South Africa (NEASA).