As National Minimum Wage Grows, So Does Non-Compliance -

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JIMMY MOYAHA: Whenever the conversation shifts to minimum wage, it often sparks a unique debate. On one side, there is advocacy for raising the minimum wage, while on the other, companies are looking to cut costs. Interestingly, as we strive to increase the minimum wage, some organizations opt to ignore it.

I am joined by senior researcher Benjamin Stanwix from UCT’s Development and Policy Research Unit to explore this topic further.

Good evening, Benjamin, thank you for being here. Why is it that non-compliance with the minimum wage remains so widespread? Isn’t it a legal requirement?

BENJAMIN STANWIX: Hi, Jimmy. Thanks for having me. You are correct; it is indeed mandated by law. I will share some context related to our research for the National Minimum Wage Commission, which regulates these wage laws.

Essentially, the process of establishing an appropriate level for the minimum wage involves multiple factors. Our previous research examined the impact of last year’s minimum wage on worker earnings, working hours, and employment dynamics. One of the critical elements of our analysis was assessing how wages respond to alterations in the minimum wage law.

Read: The double-edged sword of the minimum wage

While these matters may seem straightforward, grasping last year’s outcomes is vital for lawmakers as they consider future policies. This is an essential perspective, though not the sole one to contemplate.

Regarding non-compliance, a significant number of workers continue to earn below the national minimum wage, a trend that has notably increased in recent years. This issue is not new.

Since the establishment of minimum wage laws in South Africa in the early 2000s, we have witnessed persistently high rates of non-compliance, driven by various factors.

A major element here is South Africa’s high unemployment rate, which leaves many workers with limited bargaining power.

Furthermore, the state’s capacity to effectively monitor and enforce minimum wage compliance is rather limited.

JIMMY MOYAHA: There are additional factors to consider, Benjamin. We’ve observed instances where some businesses are reducing employee hours in response to increasing minimum wage demands. As you pointed out, the availability of cheaper labor alternatives might also be a factor. How do we confront this challenge?

What measures can we implement regarding the national minimum wage to guarantee compliance while also safeguarding jobs and industry? Employers must fulfill their wage obligations, but workers also require earnings above the minimum wage to sustain themselves.

BENJAMIN STANWIX: This is a multifaceted issue that policymakers and the Minimum Wage Commission are continuously assessing.

If we zoom out to view the minimum wage in conjunction with the non-compliance issue, it becomes evident that the effects of minimum wage adjustments in South Africa have been somewhat muted.

As the minimum wage increases, the expected outcomes are often dampened since some employers choose not to comply, resulting in many workers still earning below the legal minimum.

Read: SA employer organisations oppose national minimum wage hike

One potential strategy could involve maintaining a relatively high minimum wage while reallocating resources towards enforcing compliance to underscore the seriousness of this policy.

Nevertheless, we face uncertainties concerning the implications of such actions, especially given that millions of workers currently earn below the minimum wage and would need significant increases to become compliant.

Another alternative may be to lower the minimum wage in relation to average salaries in South Africa, thereby creating a feasible wage floor that fewer individuals could fall below while exploring other methods to secure equitable wages above this level.

Read: Can one live off the minimum wage in SA?

Currently, the minimum wage is relatively high when compared to the median or average income in South Africa, particularly in an international context. However, evidence suggests that enforcement remains weak.

As a result, this situation functions somewhat like an informal policy; some employers comply while others do not.

This outcome may not be a deliberate policy design, but it produces a minimum wage framework that many workers perceive as aspirational.

JIMMY MOYAHA: Based on your studies and the findings you’ve presented, does an increase in the minimum wage truly correlate with significant job losses? Are we asserting that raising the minimum wage leads to reduced employment, particularly considering the ongoing unemployment crisis? Surely, increasing the minimum wage shouldn’t adversely affect job availability?

BENJAMIN STANWIX: We haven’t uncovered substantial evidence connecting minimum wage hikes to significant job losses.

Our research from the previous year suggests that rising minimum wages result in notable wage increases for a substantial number of workers. We also observed slight reductions in working hours.

While we found some evidence of reduced employment, it pales in comparison to the notable variations in wages and hours.

It’s certainly inaccurate to claim that this policy results in major job losses.

This can primarily be attributed to the fact that many employers fail to comply with minimum wage standards.

JIMMY MOYAHA: Benjamin, looking back at the commission’s work and the report produced, what recommendations have you suggested regarding non-compliance while balancing enforcement with the interests of all economic stakeholders?

BENJAMIN STANWIX: The commission is tasked with setting the minimum wage level and assessing how to achieve that.

A beneficial model might be Costa Rica, a country with several similarities to South Africa.

They instituted a national minimum wage approximately 15 years ago, similar to South Africa, moving from a complex sectoral structure to a unified national minimum wage.

To promote this initiative, they initiated a substantial public awareness campaign to boost compliance alongside the wage implementation. This raised awareness among employers and employees about the national minimum wage, coupled with extensive advertisements across various channels.

Notably, they engaged soccer players in national tournaments to advocate for the wage and established a hotline for workers to report any violations.

They also channeled more resources into enforcement, employing relatively straightforward measures to ensure that both employers and employees understood the laws.

Although we can’t say for certain that a lack of awareness leads to high non-compliance levels in South Africa, the Costa Rican case illustrates that comprehensive efforts can lead to improved adherence to a national minimum wage.

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Thus, it might be worthwhile to consider implementing such strategies.

JIMMY MOYAHA: The minimum wage remains a highly debated issue, and non-compliance continues to pose a significant challenge. We hope for better outcomes to ensure individuals receive fair and livable wages.

That brings our discussion to a close. Thank you, Benjamin, for sharing your insights and time.

Benjamin Stanwix – a senior researcher specializing in development policy at UCT and a key contributor to the commission behind this minimum wage report – has joined us to discuss the reasons for ongoing non-compliance.

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