New Minimum Wage System in South Africa

1 OBJECTIVE
The objective of this memorandum is to provide the minister of Labour Mrs Mildred Oliphant with the generic implications of the increased minimum wage in the agricultural sector which was implemented because of the wild-cat strikes which hit the agricultural sector in the Western Cape during December 2012. This memorandum is drafted with the intention that minister of labour completely reassesses the increase in the minimum wage because of the possible implications it may have on the South African economy during these tough economic times in the world and the minister should consider creating a National Minimum Wage Model that ensure that generic implications of the policy does not result in chaos.
The memorandum will provide the minister with policy improvement alternatives to assist the minister and her department improve the current minimum wage policy that many experts believe may have unpleasant consequences on the well-being of the economy. The memorandum will also provide a list, in the form of a template adopted from Cloete and Coning (2011), consisting advantages and disadvantages of the minimum wage in the following sectors; the political sector, socio-economic sector and environmental sector, financial sector and institutional/organisational sectors. 2 BACKGROUND OF THE MINIMUM WAGES IN SOUTH AFRICA
According to the International Labour Organisation senior economist for conditions of work and employment, Patrick Belser (2012:3) argues that minimum wages across the globe have been ratified as social security policies with regards to notions that certain conditions of free market systems fail to produce the preferred outcomes in relation to a state’s social justice system. In South Africa the minimum wage is lowest wage rate, whether on an hourly, daily, weekly or monthly bases which employers in the different sectors legally pay employees whom are either unskilled or semi-skilled in the service business, in agricultural or manufacturing sectors and is prescribed differently in different sectors and areas (internet source 2013:1).
In the constitution of the Republic Of South Africa, the Basic Conditions of Employment Act of 1997 provides the minister of Labour with the authority to regulate minimum conditions and terms of employment (Act 75 of 1997). The minimum wage is meant to benefit the vulnerable individuals and the minister of labour is advised by the Employment Conditions Commission (Williams 2013:2). The sectors were the minimum wage applies are the domestic workers, private security, wholesale and retail, farm workers, taxi industry, learnerships to name a few, were employees are not represented by unions or little union activity and wages are known to be extremely low (Mywage 2013:2). The minimum wage rate is annually reviewed and is linked with the consumer price index. The minimum wage was first introduced in 1999 by the then minister of labour, Membathisi Mdladlana and was created to benefit domestic workers (Blaauw & Bothma 2010:2). 3 MINIMUM WAGE, TODAY!
The current situation of South Africa’s minimum wage were the minister of labour announced the increase of the minimum from R69 to R105 resulted from the violent strikes which struck the agricultural sector in the Western Cape December 2012, as there is no official national policy for minimum wages (Bhorat Kanbur & Mayet 2010:2). However, the law provides the minister of labour with power to determine the minimum wage in specific sectors of the country, as she did in the agricultural sector (Coleman 2012:3).
The minimum wage for farm workers was selected and centred on a report from the Bureau for Food and Agricultural Policy (BFAP) commissioned by Agri SA (Lilenstein 2013:1). There is about 4.5 million workers in South Africa whose minimum wage is decided by the process which is in line with the Basic Conditions of Employment Act (Lilenstein 2013:1). The minimum wage according to recent studies shows that 44% of employees are exploited and receive sub-minimum wages in 2007 and workers are paid on an average of 35% less than legislated minimum wage (Lilenstein 2013:2). This means that according to Cosatu, approximately R16 billion per month is extorted from low income workers (Lilenstein 2013:2). Furthermore, a report conducted by the Labour research Service Report on Bargaining indicators (Clarke 2012:2) states that there are at least 19% of low paid workers are below the living wage level of R4 105.

4 PROBLEM WITH THE MINIMUM WAGE
According to the Transvaal Agricultural Union (TAU SA) the minimum wage increase came to the fore as a result from the violent strikes in December 2012 and will cause problems in other sectors with could jeopardise labour relations in the country (Clarke 2012:2). The minimum wage will cause small emerging farmers to cut down their workforce because they will not be able to afford to pay workers and the union argues that the government will indeed create a climate for inflation which would affect consumers the most because of price hikes in electricity and fuel prices (Clark 2013:2). In addition, the increase in minimum wages is not favourable to investment and maintenance of the agricultural industry’s input to food security (Stanwix 2012: 2).
It can be noted that South Africa’s agricultural sector will undergo complete alteration in the next couple of years because of the increase in minimum wages were farm owners would change to less labour –intensive products or they would mechanise with the purpose of balancing out their financial books (Clark 2012:2). According to Clark (2012: 2) an economist at Nedbank states that empirical evidence across the globe does not indicate without exceptions that minimum wage increase does not lead to more unemployment.
However, the increase does though have an effect on farm owners, as over the past couple of year’s farmers have been compliant with the minimum wage legislation; however, the legislation remains weak because of poor analysis from the department (Clarke 2012: 2). In a report done by the Employment Condition Commission in unification with the department of Labour found that basic minimum wage for a farm worker was R84.90 and an increase to 104.98 would have a negative effect on a farm’s capacity to afford operational expense, appropriating and entrepreneurs’ renunciation (Odendaal 2013). 5 REASONS FOR POLICY PROPOSAL TO IMPROVE THE MINIMUM WAGE
South African is well known for its violent protests which occur frequently because of wage disputes across all sectors. The reasons for this policy memorandum is to assist specifically the Minister of Labour, and other bodies involved in the minimum wage policy making process to create a National Minimum Wage Model that will be infused with applicable sectorial and macro policies for preferred employment improvement plans. 6 TEMPLATE 1 Sector | Advantages | Disadvantages | Modifications to reduce disadvantages | Political Sector | Cosatu and other unions have welcomed the minimum wage increase (Craven 2013:1). In addition, more workers in different sectors now started joining unions and committees to represent them during wage quarrels between employers and workers (Craven 2013:2).Workshops will be conducted to tackle the issues of wages in different sectorial determinates (Craven 2013:3). | In South Africa according to Nolutshungu (2012: 1) minimum wage policy; could to a certain extent, be influenced by political bodies to benefit electoral results in the upcoming election.If the labour legislation becomes inflexible, South Africa would be less competitive in international markets because of the effects of the minimum wage (Clark 2012:1). | Trade unions and political entities should focus more on issues that affect minimum wage workers (Coleman 2012:15).In addition, instead of creating conflicts with the different sectors and power struggles amongst their members, they should build relationship with their members (Coleman 2012:15). | Environmental sector | In the environmental sector of the minimum wage, the hospitality, agricultural, taxi, domestic workers and retail sectors since 2007 have experienced growth in employment (Stanwix 2013:5).The minimum wage policy aims to benefit minimum wage workers in both rural and urban areas in the environmental sector (Stanwix 2013:6).A team consisting labour inspectors created by the department of Labour to ensure employers comply with sectorial determination of the minimum wage policy (Bhorat Kanbur & Mayet 2012:3).The environment sector of the minimum wage will result after the policy decision making process is finalised provide minimum wage workers with suitable working hours and employee benefits as similar to actual wages (Coleman 2012:2) | According to Stanwix (2013:7) poverty levels of individuals in domestic worker and agricultural sector is higher than those in other sectors and provinces. An increase in the involvement of the EEC sectorial minima does not necessarily mean that the minimum wage would eradicate poverty completely (Stanwix 2013:8). TheMinimum wage will cause inflation because of price hikes during this tough period in South Africa (Clark 2012:2). The minimum wage is prescribed per sector, and a sector is considered helpless if no minimum wage policy within its borders exists, regardless if workers receive low wages and are not represented by unions for their respective sectors (Fedusa 2013:13). | Introducing a national minimum wage policy would combat wage disintegrations and ensure comprehensive analysis in the facilitation of a national platform to fight poverty (Coleman, 2012: 19).Workers should be made aware of the rights outlined in the Basic condition of employment Act because of the current problem were employers do not comply with the conditions of the act (Bhorat Kanbur & Mayet 2010:3).The new national minimum wage will lay the foundations for a comprehensive improvements strategy in wages disputes and circumstances of poor collective bargaining process (Coleman 2012:19). | Socio-economic sector | Workers who fall under the minimum wage can collectively bargain for wages above the minimum wage for example domestic workers and taxi drivers (Lilstein 2012:2). The minimum wage at the aggregate stage has been effective in raising real wages in different sectors of the minimum wage (Bhorat, Kanbur & Mayet 2010:3).There will be discussions regarding the provident fund for farm workers and other sectorial determinates within the minimum wage belt (Craven 2013:2).In Addition, this will be conducted with the intentions that the proposed policy becomes an effective scheme across all sectors (Craven 2013:2). And those who are not protect by the trade unions or committees during wage disputes with employers will have a support structure during this process which often results in violent protests (Nolutshungu 2012:1). | If wages are higher than R85 a day, this would result in labour-intensive commodities such vegetables and fruits being rendered unrealistic (Stanwix 2013:3).Farm workers, taxi, forestry and security sectors yield a negatively in employment and wages (Bhorat, Kanbur & Mayet 2010:3).The disadvantage of the minimum wage in the socio-economic sector is that employees should work in terms of their own socio-economic factors (Nolutshungu 2012:1). Cosatu issued a socio-economic report which argues that the existing social order is unable to solve the problems that affect the disadvantaged citizen of the country (Coleman 2012:1). Farm owners argue that the minimum wage increase will result in high levels of unemployment and job losses in all sectors of the minimum wage (Nolutshungu 2012:3) | The must recommend a redistribution wage model for enhanced improvement of the national minimum wage (Coleman 2012:21).This particular model should be designed to meet the standards of the Minimum Living Level, the International Labour Organisation and the Organisation for Economic Co-operation and development, within a specific timeframe and short-term intervention is required to address the current situation regarding the minimum wage (Coleman 2012:21).Combining the National Wage with an efficient Collective Bargaining system should result in an effective South African Wage Commonality model to reduce gaps between wage levels and increase real wages (Coleman 2012:22). | Financial sector | According to (Coleman 2012:3), the financial and service sector development is the only sectors because it’s narrow based for production and consumption. An increase in wages in the provinces that received the lowest wages since 2007 such as Limpopo, Mpumalanga, Free State, Northern Cape and the North West (Stanwix 2013:3). Minimum wages are customarily set on an annual period and is determined by the consumer price index (CPI) (Stanwix 2013:4). | The minimum wage ratio to the median wage for the total in South Africa, also known as the Kaitz index, is moderately high in several sectors related to the minimum wage (Stanwix 2013:5).According to economists, the minimum wage might have increased because of the law (Stanwix 2013:5).However, substantial proportions of the workers across several sectors receive sub-minimum wages because of poor incentives among employers to comply with the law and corruption amongst officials (Stanwix 2013:6). | The National wage must also implement a system to control compliance amongst officials and employers to ensure that there is no primitive exploitative activities takes place in the labour market (Bhorat Kanbur & Coleman 2012:21).The accomplishment of business and sectorial determinates plans must be created to promote wage unity as a condition to access state inducements to meet both parties demand (Bhorat, Kanbur & Coleman 2012:21). | Institutional/organisation sector | The Employment Conditions Commission (EEC) and the department of labour are responsible for setting the minimum wage in South Africa to benefit workers who are paid according to the legislation (Bhorat Kanbur & Mayet 2012:2). The EEC aims at protecting workers who are not represented by unions in South Africa labour market (Bhorat Kanbur & Mayet 2012:3).Union participation is essential in the most defenceless sectorial determinates for the purpose of allowing collective bargaining to take place with all parties involved (Coleman 2012: 20) | Minimum wage policy would result in unemployment and violent strikes because many employers cannot afford the increase or just refuse to comply with minimum wage (Kumwenda 2013:3).The minimum wage is not actual wages; parties involved are allowed to negotiate for better wages according the minimum wage of R104.98 as the minimum floor (Kumwenda 2013:4).Cosatu during their Living wage conference initially proposed to focus on sectorial bargaining instead of embracing an effective and efficient national wage system (Coleman 2012: 17). | There are three policy option made available for the minister of labour to consider when creating a national minimum wage; First, the minister should immediately reach implementation process after decisions have been made regarding improvement of the policy (Coleman 2012:20); secondly the minister should create a two-tier procedure that will consist of one part of the national minimum wage and the consisting of farm and domestic workers separate from other sectors with the involvement of unions (Coleman 2012: 20). |

7 CONCLUSION
The Following policy Proposal was drafted for the minister of Labour to provide her with the necessary tools to assist her in create a National Minimum wage model that will benefit minimum wage workers in sectors that are deemed vulnerable. The proposal provided solutions to in the current situation sector such as increasing the number of inspections (through more inspectors and resources) as well as raising the financial penalties for non-compliance may improve levels of compliance.
Compliance is also likely to receive more public attention after the strikes, which should further narrow the gap between actual wages and the minimum wage. The Minister and related parties must come together and assemble a suitable minimum wage policy which should make an effort to ensure that the intended anti-poverty effects are maximised and the negative employment effects are minimised.