Minimum Wage has some effect, despite violations – February 2011

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An increase in enforcement of the Minimum Wage in South Africa has resulted in a decline in poverty levels, especially for domestic and farm workers, research covering the period 2001 – 2007 has found. 

The proportion of workers with a written contract also increased significantly during this time, as did the number of workers with an employer paying UIF contributions on their behalf, or contributions to a pension/retirement fund.

However, there are a significant number of employers in South Africa who are still violating minimum wage laws across all sectoral determinations. 

These were part of the findings released in a presentation by Virgil Seafield of the Department of Labour at the FEDUSA Collective Bargaining Conference held recently in Johannesburg. Focusing on “The Effect of Minimum Wage Setting in Vulnerable sectors in South Africa”, it was found that while setting minimum wages in 11 sectors in South Africa had had a positive effect in some sectors, in terms of wages, poverty and employment levels, enforcement of minimum wages remains a concern.

Increase in wages

It was found that overall real wages of covered workers increased significantly at 2.1 percent per annum between 2001 and 2007. This rise in real wages was driven by the domestic and farm worker sectors, which experienced real wage increases of 6.6 and 7.3 percent respectively. The significant rise in wage levels in these two sectors may indicate that minimum wages have had an effect on vulnerable sectors. However, domestic and farm workers still remain amongst the most vulnerable in the labour market.

Poverty and wages

The presentation also included a more formal analysis of the impact of minimum wages on poverty, using the definition of poverty as wage poverty (excluding income from grants and household assets).

The study analysed the impact of minimum wage legislation on the poverty status of individuals, measured by their household poverty. This allowed some broad conclusions to be made about whether the poverty status of these households have improved since the introduction of minimum wage legislation. 

It was found that there was a decline in poverty during the 2001 to 2007 period. This was evident across all sectoral determinations, with the exception of the taxi sector and the civil engineering sector. The decline in poverty levels is most apparent for workers covered by the domestic, farm and forestry sectoral determinations and least evident for those employed in the contract cleaning sector.  

It was also fund that households with workers dependent on wages subject to minimum wage legislation are likely to be poor, whereas households where wage earners are not covered by sectoral determinations (their wages may for instance be set by bargaining council agreements) are less likely to lie below the poverty line. 

However, whilst an increase in enforcement of the sectoral minimum wages would lower poverty, the minimum wage is not the only instrument needed for poverty eradication.  Minimum wages may not be the only source of income for a household.

Decent work? Not quite

Whilst overall there was an improvement in working conditions amongst workers covered by sectoral determinations during the 2001 to 2007 period, domestic workers still remained the worst off, along with workers in the farm, forestry and taxi sectors. 

Domestic, farm, forestry and taxi workers were the least likely to receive benefits such as paid leave, a written contract, pension/retirement, UIF, and medical aid. In other sectors, there was an increase in all these areas, from receiving benefits to getting a written contract.

Compliance

There were a significant number of employers in South Africa who are violating minimum wage laws across all sectoral determinations, the presentation has found.

In 2007, 45 percent of all workers covered by sectoral determinations were not being paid the legal minimum. Non-complying employers paid wages that were on average 36 percent short of the legislative minima in that year.  But although non-compliance levels are high, there is some evidence to suggest that non-compliance declined during the 2001 to 2007 period. The proportion of violated workers fell from 55 to 45 percent.

Firm-level and contractual factors seem to play an important role in compliance, notably the nature of a contract, union membership, the length of tenure, and the formality of the firm. 

The labour inspectorate deployed in predicting the size of the violation, as well as the importance of the local unemployment rate are also significant factors. 

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