Employers face further pressure as national minimum wage hikes loom

by ashley

Youth development agency Afrika Tikkun Services, which specialises in corporate transformation by connecting skilled black youths into the workplace, is calling for labour and political leaders to focus on balancing minimum wage increases with their potential impact on unemployment.

This comes as South Africa’s official unemployment rate has decreased by 0.3 of a percentage point, compared to the previous quarter, with the latest number now at 32.6%. These gains have not come without losses. Approximately 200 000 jobs were lost in some of the country’s major industries.

Meanwhile, the yearly discussion around raising the National Minimum Wage (NMW) has intensified as the National Minimum Wage Commission has called for public submissions for the increases to the wage minimums for 2024. Employers are already under pressure to hike their wage bills as inflation pushes workers beyond the minimum wage bracket to negotiate for better pay to match the rising cost of living.

“As the possibility of raising the NMW to match the rising cost of living, SA must prioritise the objective of growing its employment rate, or risk further economic vulnerabilities,” says Onyi Nwaneri, CEO of Afrika Tikkun Services.

While Afrika Tikkun Services applauds SA labour regulations that seek to protect workers’ rights, it calls for a policy framework that ends the cycle of unproductive, unskilled labour and unemployment in the country. Unproductive workforces destroy the ability of companies to create wealth – and therefore more jobs, the company warns.

Studies have shown that while the blanket minimum wage has historically been a net positive in developed countries, it could have unintended consequences in countries with high youth unemployment rates, like South Africa. “It is essential to consider all perspectives when discussing policy changes that affect the economy,” adds Nwaneri.

It is notable that the industries that have seen the most contribution to employment rates are construction (104 000), trade (92 000), as well as community and social services (63 000).

At the same time, employment losses were recorded in manufacturing (96 000), finance (68 000), transport (7 000) and utilities (6 000).

The link between minimum wage and unemployed rates in SA must be investigated. Increasing the NMW can contribute to higher labour costs, which can have a significant impact on small to medium businesses (SMEs), says Nwaneri.

The current NMW for SA increased from R23.19 per hour in 2022 to R25.42 per hour in 2023, an increase of approximately 9.6%.

Finding a balance between fair wages and employment opportunities is complex. “Raising minimum wage should be a balancing act that takes into account the need to reduce poverty and inequality in the light of high inflation rates, but still swing the bigger picture and preventing a situation where small businesses, which are the backbone of the economy, can no longer afford labour costs,” says Nwaneri.

“If we don’t find a balance between addressing economic challenges and the social impact of inflation, the problem we are trying to solve will remain a pipe dream: the triple problem of poverty, inequality and unemployment will remain. Like Thomas Edison said, insanity is doing the same thing over and over again, expecting a different result. It is time we looked at things holistically and differently, with a view to trial a new and balanced approach.”

To address valid concerns about NMW increases discouraging small businesses and impeding job creation, it’s important to consider implementing minimum wage policies alongside other measures to support businesses, she suggests. One of the most effective measures that can largely be credited for the survival of the economy during the COVID-19 pandemic is providing tax incentives or access to affordable loans and training programmes. These measures could help alleviate the burden on smaller enterprises while still ensuring fair wages for workers.

“The NMW should not be increased such that it risks exacerbating unemployment. SA has the highest youth unemployment rate in the world; significant wage increases will discourage employers, in particular SMEs, from creating employment. We don’t want labour to be unaffordable by those who need it most and who are in a position to create it the most.”

The decision to raise the NMW and by how much should be informed by what we know about the long-term impact of similar policies around the world, says Nwaneri.

It’s also important to note the lack of research on the impact on South Africa’s minimum wage policies on unemployment rates and economic growth against the backdrop of long-existing challenges in those areas. Therefore, policymakers should take a comprehensive approach that includes supporting job creation, entrepreneurship and other labour market policies to address high youth unemployment rates effectively.

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