The ‘minimum wage’ should only apply to employees in the top end of the first occupational level.  Employees who start at the entry level will soon receive higher wages once they have ‘proved their worth’ to the enterprise.  Managers are far more likely to provide employment at the lower entry level wage.  It seems to have been falsely assumed that the debate over a national minimum wage is about the ‘starting’ wage  or the ‘entry level’ wage.  If that happens the results will be devastating.

Enterprises are now required by the Employment Equity Act (EEA) to create a framework of seven occupational levels with a built-in semantic scale.  The intellectual processing that needs to occur in any enterprise has varying values which need to be matched with an appropriate wage.  In other words a true value exchange.  The wage curve has to be linear because the law requires ‘proportional differentials’ across all seven levels.  That means when moving up from one level to the next there could be a doubling of the wage.  So within any one occupational level there could be a differential of up to 100%.  In the lowest occupation level an employee entering that first level could receive a wage of nearly 100% less than someone who has been doing the same work for some time, but who provides greater value justifying a higher wage.

Read Joel Netshitenzhe’s opinion piece Minimum wage is no magic bullet first published by Business Day in BDlive on 28 August 2015.

Extracts

COMPLEX issues have been put on the table in the gold mining wage negotiations.  Employers are calling for a compact that includes a pay increase, job retention, accommodation, wellness, skills development, retirement savings and debt management.

There have been hints at profit-sharing and employee share ownership so as to “share the pain and the gain” in the ebbs and flows of the commodity cycle.  However, this has been rejected by the major unions.  The gains were not shared during the “fat years”, they argue, and workers deserve their pound of flesh.

Assessment of both sides’ arguments belongs in the negotiation chambers.  However, these matters relate to the broader debate at the National Economic Development and Labour Council (Nedlac) on the advisability or otherwise of a national minimum wage, the level at which it should be set and whether money metrics and cash wages should be the sole focus in dealing with income poverty.

In their paper published on the Econ3x3 web forum, Frederick Fourie and Pippa Green summarise the three main approaches to the debate as follows.

Some economists express concern about the negative employment effects of too high a national minimum wage.  Arising from this, Jeremy Seekings and Nicola Nattrass propose a differentiated system of minimum wages which, though at a higher threshold, would effectively retain the status quo.

Others, such as Gilad Isaacs and Ben Fine, reject the argument that wages are the main factor in determining employment levels.  Required, rather, is a high minimum wage along with structural reforms that promote investment, output growth, efficient production and better management.

…

Fourie and Green try to identify a possible synthesis:

first, that the negative impact of too high a minimum wage cannot be ignored, whether it shows up in the form of job losses, non compliance or shorter working hours. 

Second, the argument that a rising floor of minimum wages should be combined with economy-wide structural reforms is a logical one. 

Third, a national minimum wage would need to be phased in, starting with a variegated approach and with appropriate sequencing of the policy actions.

And so, from this kind of consensus, technicians can calculate the figures, informed by the minimum living level or upper-bound poverty line, which takes into account broader needs of households.

Such calculations would also have to take into account the dependency ratio (the number of people who rely on a single employed individual) ultimately to determine the magic number — which Cosatu estimates to be about R4,500 a month.

. . . .

While a minimum wage would have to be pegged to inflation, this issue also needs to be dealt with at a structural level.  As various pieces of research have demonstrated, SA’s product market reflects inordinately high mark-ups above cost.  A comprehensive strategy to address this challenge would also help reduce pressure on cash wages.

A comprehensive approach should include properly structured employee share-ownership schemes and profit-sharing.

. . . .

With regard to the broader political economy, a combination of measures (both economic and social) is required to ensure a decent quality of life for all.  A phased approach to a “living” national minimum wage would constitute part of the package.

But, beyond a technicist approach, special attention should be paid to the specifics of our colonial inheritance, particularly the many factors that place inordinate pressure on cash wages.