National Minimum Wage: UWC, PLAAS and Progressive Professionals Forum

Meeting report

The Chairperson opened the meeting by explaining that the conditions in which the minimum wage is implemented around the world vary - what works in one place may not work in South Africa and vice versa. The submissions must be convincing in their explanation of what they believe is right for the country on what can be done to address the poverty levels in South Africa.

University of Western Cape (UWC) Social Law Project submission
Ms Fairuz Mullagee and Mr Roger Ronnie, representatives of the Social Law Project at the UWC, gave a submission arguing for the implementation of a national minimum wage.

The vision of the Social Law Project's mission was to strengthen the movement for social and workplace justice. Inequality in South Africa is some of the highest in the world. There is a lack of social cohesion which has manifested through high levels of public protest and strike action. The implementation of a national minimum wage must be considered within current legislative framework such as the constitution, the Labour Relations Act (LRA) and the Basic Conditions of Employment Act (BCEA) which covers the Employment Conditions Commission (ECC). The ECC must take into account a number of things when making recommendations to the minister, including the ability of employers to continue the successful running of their business and the alleviation of poverty.

Introducing a Minimum Wage
By taking wages that have been set through bargaining institutions and the wages of workers set through sectoral determinations, a set of median wages was calculated and illustrated through a table on the submission. The median minimum wage across all industries was R3500 per month.

To evaluate the need for a minimum wage the Social Law Project looked at the value of work according to the Decent Work Agenda (DWA) set by the International Labour Organization (ILO). Work is a source of income and personal dignity, offering improved social protection and the promotion of social dialogue. It has both a social and economic value in its contribution to an individual's well-being and human development. This is internationally measured according to the Human Development Index that combines health, education and living standards, including an adjustment index that measures the loss of human development as a result of inequality. Introducing a minimum wage would address the inequality caused by a growing wage gap.

Ms Mullagee used domestic work as an example to show the need for a minimum wage. Domestic work is not valued in comparison to other labour and workers are at risk of depression. The introduction of a minimum wage would be an opportunity to encourage respect for what domestic workers do and define realistic work expectations. Mr Ronnie added that in setting a national minimum wage there were a number of submissions that suggested excluding domestic workers because they would bring down the minimum wage. However, if served correctly the minimum wage should serve to raise their wages.

Summary: Why a National Minimum Wage is needed and Recommendations
A national minimum wage would reduce the extent of inequality and poverty, although work is needed to find a way of integrating it with existing bargaining arrangements. It would provide protection to vulnerable workers and it is easy to understand and enforce, serving as a foundation for improvement to employment conditions through collective bargaining. Economic issues are not disregarded, but any analysis should extend beyond simply the economic costs. Through engagements with the public and consensus on how the figure is determined it would allow the development of a wage policy as part of the Decent Work ILO programme, paving the way to a new collective bargaining model. It is a key part of human development, not only the availability of jobs.

PLAAS submission
Prof Ruth Hall from PLAAS gave a submission arguing for the introduction of a national minimum wage based on evidence gathered from the agricultural sector in South Africa, where a sectoral minimum wage was introduced in 2003.

The agricultural sector can be looked at as a microcosm of the current debate because it is diverse and prompted debate on how a single minimum wage could be applied to such a variety of enterprises. There was need for regulation but there were fears that further regulation could lead to the reduction of jobs. The outcomes of the 2003 minimum wage have partly contradicted predictions regarding this. The original two-tiered approach to ranking districts according to existing wage levels was merged into a single national minimum wage in 2009. Findings from a 2001 study showed that children of farm workers were more likely to be stunted from malnutrition than children from any other sector of society. This highlights the tension between the need for a minimum wage and the fear it would lead to job losses, where vulnerable unskilled workers such as women and young people would be particularly at risk. However, marginal businesses reliant on exploiting labour would go bankrupt and another would take their place, assisting with the transition to a more equitable economic structure. A floor cannot be set without threatening some enterprises. The key argument is reducing inequality between sectors so there is not exploitation in one compared to another. It is clear that jobs are a national priority, insofar as they help to reduce poverty. However, agriculture remains a sector of the working poor in spite of a minimum wage. The value of the minimum wage is in its ability to incrementally improve standards of living. A challenge with the agricultural minimum wage is its basis on CPI+1 or CPIX+1, but because of food prices the real value has decreased over time.

Although the numbers of agricultural employees dropped from around 2002, farm employment stabilised around 2011 and gradually began to increase because of good commodity prices. The Development Policy and Research Unit (DPRU) found that there were high job losses in the agricultural sector but the heavy dependence on exports and structural change were the main influences on jobs, not the increased minimum wage.

The Increase in the Agricultural Minimum Wage
A study by Bureau for Food and Agricultural Policy (BFAP) found that most farmers would be unable to sustain existing employment levels with even an increase of R20 per person per day. However, it was unlikely that even an increase to R150 per day would allow a farm worker to afford sufficient nutritious food. A minimum of R105 per person per day was established as a midpoint and adopted in March 2013. The outcome showed that most farmers were able to absorb the cost in spite of a 50% increase. The drop in employment was small in comparison to what was predicted - 26 000 jobs were lost, but R2 million was added to the wage bill. This can be explained by agricultural economics - lots of marginal farms have disappeared but the same amount of land is being farmed. There is still a growing demand for labour, especially higher-skilled labour in more precision-based farming and labour-substituting mechanisation has been largely achieved. Farms need to retain labour-force to retain production levels and production systems have been adjusted to make new wages affordable. The DPRA argued for special dispensation for agriculture because a lot of people working on farms also live on them. This social wage, or payment in kind, should be guarded against - a lot of housing is substandard and workers are charged per person to stay there. It is hard to monitor and rapidly declining.

Conclusions
It is the macro-economic policy that is the cause of unemployment, being closely associated with the restructuring of farm ownership. It is the rising cost of intermediate goods and growing power of downstream retailers that are the main explanatory factor in the increasing cost and squeezed prices in agriculture, not labour costs. The wage determination in 2003 and amendment in 2013 has modestly increased wages and the decline in employment has tapered off so the numbers are stable.

Table grapes in Hex River were used to explain this. Of every £1 of table grapes in the UK, 42% is retained by the foreign retailer. Only 18% is the farm gate price, including all production costs. It is important to recognise the pressures macro-economic and trade policy places on farming enterprises, and wage policy should not be used to compensate for their failures.

Discussion
Mr M Bagraim (DA) said he would like to have some time to digest the reports. Would the presenters be able to return at a later date? Anecdotal evidence from interactions with farm workers and farmers has suggested that they feel they are worse off after the implementation of the wage increase. There appears to be an outcry from the community. The majority of the larger farmers are getting stronger but it is black farmers who are suffering most from the increase. Could PLAAS comment on that?

Mr I Ollis (DA) drew the Committee’s attention to the table showing 2012 Wage Agreements and Sectoral Determinations: Median wages in the first submission, citing the statistic of 939 bargaining units against 3.9 million workers. Does that include the workers covered under the extension to the bargaining agreements that the minister has implemented? It indicates a median minimum wage of about R3500 per month, meaning that 50% of the workers covered are earning less than this. Is this correct?

Regarding the second submission, Mr Ollis noticed that neither submission appeared to have interacted with the UCT's 2003 figures showing that 200 000 workers are no longer employed after the installation of the minimum wage in 2003. There was also a statement in the submission by Business Unity South Africa (BUSA) that 78 000 jobs were lost in the agricultural sector [after the 50% increase in 2013], presumably referring to the increase in the minimum wage. Could you explain this? You stated that that a minimum wage would reduce poverty levels but you also said that 26 000 jobs were lost and it was not a very big number. However, those people have to go home with nothing, even if their families have to rely on their income. So for those people it has led to an increase in poverty because South Africa is currently so resistant to job creation. If individuals lose their job in one sector, it is sometimes years before they can find another one. Even skilled people in South Africa struggle to move into other sectors. There is going to be some effect from the introduction of a minimum wage and the Committee needs to determine what the effect that will be. The research put forward in each submission shows different sets of figures, could PLAAS try to clarify this?

The Chairperson told the presenters that they were at liberty to respond based on the figures put forward in their submissions. It could be difficult to respond to figures given in previous submissions by other institutions as they are not aware of what informed their figures.

Ms P Mantashe (ANC) said she appreciated it was not necessarily the introduction of a minimum wage that caused job losses - there were job losses in the 1970s on farms. For example, the job losses in the province she is from was because, when democracy was approaching, white farmers left the country, or opted to farm animals instead. The submissions prove beyond doubt that it is not the introduction of a minimum wage that has caused job losses. A balance must be struck and the consequences explored, but she hopes the academics will support the Committee in reaching a decision that will help to resolve the abject poverty of the South African people. If someone had not personally experienced poverty, they would not understand this.

A National Union of Metalworkers in South Africa (NUMSA) representative said that the importance of the second submission was in showing that there are constitutional imperatives. The use of quantitative analysis and technical data loses sight of these social aspects, but PLAAS have grounded their submission well in taking it into account the Human Development Index. There is a constant rhetoric that suggests a national minimum wage cannot be implemented without losing jobs. The submission debunks that - it is not just wages, there are other factors that have led to the erosion of jobs. When import tariffs went down between 1996 and 2001, 40 000 jobs were lost in the engineering sector. It was not anything to do with wages, but the result of cheap imports. The argument for a national minimum wage is a process that will lead to integration of different ideas into debate. Structural issues must be taken into account when discussing job losses. Some of the macroeconomics may need to be redesigned to get to this national minimum wage without the job losses that are being bandied about.

A Department of Labour representative said he also wanted to caution against the myth of job losses. He wanted to discuss the integration of sectoral determinations and collective bargaining. The reason for minimum wages is to set a floor and has nothing to do with collective bargaining. There is no problem with doing comparative analysis of wages for the sake of coming up with a national minimum wage figure, but minimum wages should be about the protection of vulnerable workers. Collective bargaining is there to make conditions better.

Mr Omar Parker from the National Union of Public Services and Allied Workers (NUPSAW) stated that the input had been extremely valuable. Both submissions fundamentally show that the vast inequalities in South African society cannot be addressed in a mechanical and simplistic way. It needs to be looked at holistically. The country is operating in a global economy and for that reason, with regard to the mechanics and perimeters that exist within collective bargaining arrangements, it is important inequalities are not exacerbated. How can this be guarded against? For example, minimum wages are higher in non-statutory councils where there is non-centralised as opposed to centralised bargaining. There are vast disparities between workers at the top and workers at the bottom, where percentage-based wage increases are more beneficial to those at the top. How can these realities be avoided? Could the UWC presenters clarify how they arrived at the information stating wages are less in non-statutory councils as opposed to centralised bargaining?

Mr Mohammed Ismail from NUMSA said the organisation were happy to see there are universities that give a big consideration to the constitutional imperatives and ILO objectives. It demonstrates a social conscience and proper research in those important principles, for which many South Africans fought and died for. They have provided accurate research on many of the debates there have been before which helps a lot. On the issue of productivity, South Africa’s levels are much lower than other countries, such as Latin America. The professor mentioned that the economy has been liberalised, macroeconomic policies have been introduced, and that has resulted in heavy job losses. Employers must take a lot of blame for this too - they did not adjust as the farms have adjusted. The benefits of adjustment have been seen but very little has gone into skills development. Employers need to start investing in skill development - they blame workers for low skill levels but do not assist in upgrading them. It is not only the workers, but management as well, that contribute to low levels of productivity. This needs to be improved to meet the demands of international competition - employers need to make the necessary contributions to help workers increase productivity, allowing profits to increase and consequently wages to increase. If this is done, the desired imperatives will be met.

A SACCAWU representative stated that there are mechanisms which need to be put in place. The government needs to redistribute the wealth of the country so that workers also benefit. The three ills of poverty, unemployment and inequality must be addressed and the median wage is a step forward because it is a starting point. Macroeconomic policies have been exploited and profits need to be regulated. If they are not, the ills of South Africa will not improve. The sectors that are particularly vulnerable worry that small businesses will suffer, but the universities need to help identify mechanisms that can help address this problem. The concern is whether workers can earn a living, as currently they cannot. The lifestyles of people whose businesses are suffering must be considered because they often have a lot of property. They are selfish and greedy and not prepared to share in the wealth of South Africa.

A Confederation of South African Workers' Unions (CONSAWU) representative stated that the submissions were very helpful in making clear the direction they believe should be taken in regard to the national minimum wage. The reasons a national minimum wage is supported are clearly indicated in the UWC's submission. The need for a minimum wage could not be explained more thoroughly than the slide in Prof Ruth Hall's submission containing the plates of food. In order to become a worker, an individual must eat. Plate A identifies what is needed to get there, but the worker does not currently receive that for the services rendered. If the submissions were forward in this fashion it could help a lot in reaching a final decision.

Mr Ollis said he was concerned about the context of the submissions being set in terms of big government, big business and big labour. The Committee do not hear a lot from small business or the unemployed. The excuse that the unemployed are badly organised cannot be an excuse. As the parliament of the people, the voices of unemployed South Africans need to be considered. Input is also needed from small business - why is it a company executive can give himself a 12% increase but expect his workers to live on a 5% increase? There is a moral issue, regardless of the value of the rand, which should be questioned. There is also the issue of trade unions, such as when shop stewards order themselves increases but other workers did not receive any. The second submission did not go into the social wage in detail, but it is applied by government. Should the government not intervene? These are the kind of questions that would be asked by small businesses or the unemployed.

Ms F Loliwe (ANC) stated that she wanted to assure everybody that when it came to public hearings, everyone would be included. When the Committee comes to a decision it would want the opinions of everyone. It is not an entity that caters for certain parts of society, it caters for all South Africans. The Committee is there to collect information in order to demonstrate empirical evidence at public hearings, but it is there for the poor and the have-nots.

Mr Ephraim Mphahlele from NUMSA said that it was important not to misrepresent South Africa's history and that the participation of social partners in public hearings was key. All sectors should be included in the hearings. The social balance of workplaces also needed to be taken into account to address inequalities. The statement that shop stewards ordered themselves an increase is simply not the case. There may be problems in introducing a minimum wage but a solution needs to be looked at. Current labour laws are built on flexibility.

Another trade unionist commented that it was important to recognise that the labour markets in South Africa were more deceptive than reality. For example, it is said that it is very difficult to fire people but this does not correlate with the rate of unemployment. Similarly, with the issue of small businesses, when the government wants to set sectoral determinations part of the process is conducting public hearings where all stakeholders are invited. The ECC take small business into consideration and South Africa's current labour laws reflect this through regulated flexibility. Small businesses can approach the Department of Labour to say they cannot afford the minimum wage and remuneration can be granted. This cut across collective bargaining agreements. It is wrong to say that the current labour laws exclude small business.

Mr Ronnie responded to the table on the median minimum wages. The number of bargaining units is not necessarily reflective of actual collective agreements. Secondly, they are the total number of workers, not necessarily workers who receive a minimum wage. Further research is needed to see who currently finds themselves on the bottom rung. The database from which the figures were taken is based on signed collective agreements, as such they do not necessarily include every occupation. It is only a general across the board so further investigation would be needed to evaluate how many workers actually see that wage. All workers enjoy the same constitutional rights to bargain collectively. The context in which sectoral determinations emerge is understood, but there is a possibility that if they continue the way they are currently being dealt with that those workers would never realise this constitutional right. Consideration needs to be given to the mechanism that fosters the organisation of workers in vulnerable sectors, and the employers in these sectors need to engage. A recent development driven by the CCMA looked at sector summits in these vulnerable sectors, bringing employers and workers together as the first step towards a the creation of an institutional arrangement for discussion.

In terms of the minimum wage, the Decent Work Programme has a formal resolution signed by business, government and organised labour stating that they will ensure other stakeholders are given a platform for their voices to be heard. The UWC believes that if there is a buy-in at that level, progress will be made in that the views of all parties will be heard effectively.

Prof Hall said she could not provide an answer regarding why her figures do not accord with the DPRU figures from UCT. In the figures for 2002 to 2007 a reduction can be seen in the third column a reduction in the region of 140-145 000 workers over a five-year period rather than 200 000 within one year which is what was implied. The volatility can be seen in terms of both a dramatic drop and a recovery. If a trend line were drawn it would show a continuation of the reduction. She did not know where BUSA got their figures of 78 000 job losses after the 50% increase in 2013. The highest figure she was aware of was 26 000. For a seasonal sector like agriculture, the best way is to take quarterly figures to arrive at an annual average because it depends on when the survey is carried out. Any number of people losing their jobs is a tragedy and it is against national interests. However, it is also in the interests of the nation that constitutional commitments are realised through the creation of quality jobs and livelihoods. Although 26 000 jobs were recorded as lost, it is only about 3.5% of agricultural jobs at the time as a result of a 50% wage increase. This does not correlate with a 50% increase in the wage bill because a lot of workers earn more than that and are not affected. It does have an inflationary effect on highly skilled wage levels, however. The massive increase in the redistribution of income away from private businesses to workers must be looked at not only at household level, but also within local economies and particular sectors where strengthened purchasing power can be felt. In the Committee’s deliberations they should engage with Statistics South Africa (SSA) to support a process of introducing and monitoring the effects of a national minimum wage, given that more consistent methods of gathering data are needed. A major source is the census on commercial agriculture, but it is only conducted once every five years and does not always provide equivalent information. PLAAS primarily relied on the quarterly labour force survey and the general household survey, which are providing more accurate data on agriculture. It is an improvement but there is not a national annual survey, which means a lot of information coming from different sources can be contradictory. It could also be useful to look at commissioning some work that will look at similar questions across key sectors of the economy.

In response to some of the other comments, Professor Hall said it was clear that the key messages around the structural changes under-way in the South African economy - many of which pre-date the introduction of minimum wages - were fully understood by the Committee. A big concern in relation to the minimum wage is that when it is imposed it becomes a maximum wage. It becomes the only going rate and has a dampening effect on the increase of wages for certain workers. In the agricultural sector that has not been found, instead leading to an increased demand for highly skilled workers. The relatively low availability of such skills means the difference between the minimum and highest paid workers has actually increased despite the introduction of a minimum wage. The comment by NUMSA regarding labour costs and productivity is a big question, but it is a central one. The ineffectiveness of SITA to make a major contribution to labour productivity remains a problem, but investments in productivity are being made by the private sector itself for its own interests. The increasing cost of labour is an additional incentive to increase productivity.

In relation to the question as to whether farm workers are better or worse off because of minimum wages and labour regulation, there are difficulties with anecdotal discussion. There are powerful discourses from farm worker organisations saying in the past, workers were on their own, now there are rights. Before 1994 there was absolutely no regulation on farms, since then there are new rights but they are often not enforced. The withdrawal of paternalistic structures has not been followed with an enforcement of the minimum wage. Based on research in the Eastern and Western Cape, many people feel the state is there for them but it is just very far away. The withdrawal of a social wage from farmers has hit workers very hard. However, these anecdotal engagements cannot be relied upon. It is looking at what a worker's wages can buy that presents the hard facts around which decisions should be based.

Progressive Professionals Forum (PPF) submission
PPF's Deputy President Mr Kashif Wicomb and Western Cape member Ms Tiara Pathon gave a submission arguing for the introduction of a National Minimum Wage. Ms Pathon explained that there is still extreme inequality that exists, even many years after the end of apartheid. Progress has been made in some areas, with the doubling of a black middle class and a decrease in the white middle class. However, white people who stayed have become wealthier but the working poor have remained the same.

The PPF's research is focused in the business process outsourcing (BPO) sector, being a vulnerable class of workers and a fast growing sector. There has been an influx of foreign investors due to South Africa's good English language capabilities and the relatively lower costs to run businesses from South Africa than the UK. With the large numbers of jobs created, a minimum wage is long overdue. It would formalise the sector and reduce labour disputes, thereby creating a more professional image. It is supported on the understanding that workers are guaranteed a basic income and assist with the redistribution of wealth in an unequal society. It is not a quick fix, but it must be considered in terms of poverty alleviation.

In terms of international businesses, a monetary offer is made for every job created and there are incentives to bolster employment. Other countries have employment conditional benefits and tax credits to simultaneously encourage employment and support the low paid. The introduction of a national minimum wage and in-work benefits could be considered as part of a package of reforms to deal with low pay and poverty.

The PPF believes the national minimum wage will both reduce inequality and poverty, and stimulate economic growth. The additionally money made by workers will lead to increased demand for goods and services, which in turn will create more jobs for those producing the goods and delivering the services. In 2006 over 650 economists said that increasing the national minimum wage would significantly improve the lives of low income workers and their families. The PPF wants higher productivity levels to ensure the revenue line is more sustainable and a more realistic measurement of GDP so as not to disadvantage the poor. They are confident in the capabilities of social partners to reach a realistic national minimum wage that will take all of the above into account.

Discussion
Mr Ismail from NUMSA commented that BPOs were notorious because if a worker was selling a product there were no real wages as they were based on commission. It varied between call centres, but the overall working conditions were bad. Hopefully a national minimum wage would help solve this. The PPF could make a very valuable contribution to economic development. To get there we must take into account structural changes in the economy. The latest UN conference report on trade and industry has some very important things to say, particularly about developing economies that are not immune to the external shocks South Africa has had post-2008. There is a baseline business as usual scenario, which is not helping to improve growth at all. Then there is a more balanced scenario, where the emphasis is on raising household incomes and increasing domestic demand. There is a range of things to consider - a national minimum wage must take other economic models seriously. The IMF does not support a national minimum wage, or even extension of agreements of bargaining councils to non-parties. The UN has taken a more progressive approach. It is important that PPF's expertise is given a more public profile - it is a good contribution to the debate opening up around the national minimum wage.

Another trade unionist said part of the problem in South Africa was that, even if a national minimum wage were introduced, there would still be a very large wage gap with company executives. Inequalities will exist unless a social pact could be formed between labour and executives.

Mr Llowellyn Domingo (CONSAWU) asked whether a document could be sent to them covering everything that was said in detail, rather than the summarised version seen on the submission. Besides that, it has been very helpful.

Mr Wicomb agreed to send the speaker's notes to the Committee secretary as soon as possible. In terms of the national minimum wage and raising household incomes, those who stand against it think that if someone is being paid R2500-3000 a month then the money will disappear out the economy. However, it would be spent which would in turn have a knock on effect on the supply and commodity sides of South Africa's economy. As well as supporting a national minimum wage, the PPF also support a call for an increase in productivity. With regards to the question about the gap between executives and staff, the PPF are very open to having that discussion. The PPF is known for tackling issues that others do not look at.

Ms Pathon added that BPO was an unregulated sector, and NUMSA were right in saying workers were exploited. The hope is that the introduction of a national minimum wage, or even sectoral determination, will professionalise the industry and be an avenue to an entry level career. It is the second year of the annual BPO conference in South Africa and in January there is a new BPO bringing in 25 000 new jobs. It is definitely a sector that needs a new professional image so that the old idea of ‘working in a call centre’ no longer exists.

The meeting was adjourned.