Patrick Cairns
4 minute read
29 Nov 2016
7:39 am

What critics of the minimum wage are missing

Patrick Cairns

When nobody is happy, there is a chance for progress.

On November 20, Deputy President Cyril Ramaphosa announced a proposed national minimum wage of R3 500 per month. This was not a final figure, he said, but one “around which there can be meaningful discussions”.

What has been most interesting to watch since this announcement was made is that almost nobody has welcomed it. Organisations across the political spectrum have voiced their displeasure.

Cosatu noted that it was glad that a minimum wage would be implemented, but it argued that the amount was too low. It has called for a figure of R4 500.

The ANC Youth League also rejected the proposed amount. It suggested an amount of R5 000 per month instead.

Irvin Jim from the National Union of Mineworkers, which split from Cosatu in 2014, went further. He called R3 500 slave wages, and said that Ramaphosa was a “Thatcherite” for suggesting it.

This was not, however, a label that the Free Market Foundation (FMF) would attach to the deputy president. Even before the announcement was made, the organisation had said that any national minimum wage would be “economically insane and morally reprehensible”. After the proposal was tabled, the FMF said that the minimum wage would increase poverty and drive up unemployment, and that what South Africa needs is more freedom, not more regulation.

Dr. Azar Jammine of Econometrix called the national minimum wage “ridiculous”. He argued that imposing a minimum wage on the agricultural sector in 2002 had cost 250 000 jobs, and that there could be further detrimental effects if the new proposal is implemented.

The ultimate negotiator

On the face of it, one might wonder if Ramaphosa has been chastised by all of this criticism. He has, it seems, pleased nobody.

However, it is actually far more likely that the deputy president has been heartened by this reaction. It is worth remembering that Ramaphosa is a master negotiator. He was one of the most prominent figures in unlocking the stalled political negotiations in the early 1990s that led to the 1994 election, was instrumental in drafting the interim constitution, and had a long history before that of securing settlements between labour and business as a union leader.

He will know that it is only when nobody is completely happy that there is potential to reach a compromise solution. Agreements of this sort can only be successful when everyone has to give up something in order to find a some sort of middle ground.

The national minimum wage was always going to be a controversial, and so some sort of compromise had to be reached. Ramaophosa’s proposal appears close to finding that.

The bigger picture

However, most critics have also tended to see the national minimum wage in isolation. And in missing the context, they may also be missing the point.

The national minimum wage is possibly the first step in something much bigger, and much more important. Business Unity South Africa (BUSA), hinted at this in a media release it put out over the weekend in response to the recent announcements by ratings agencies Fitch and Moody’s.

“Working together in an unprecedented spirit of cooperation, government, labour and business have made a great deal of positive progress in a number of key areas,” BUSA noted. “Representatives from each social partner have worked tirelessly to promote the reforms necessary to stimulate growth and to avert a ratings downgrade and we can be proud of the success achieved on a number of fronts.”

These gains included: “Positive progress with regard to labour market reforms, with discussions on a national minimum wage and management of workplace conflict and strikes at an advanced stage.”

What this shows is that the national minimum wage is not an end in itself. It is part of a much wider discussion on labour market reforms.

In response to this, many critics will argue that it is exactly the kind of reform that we don’t need, but again we probably need to give Ramaphosa a lot more credit. He knows how this game works, and he knows that sometimes you have to give something before you start talking about what you are going to take away.

For all their criticism of the proposed amount, labour is in universal agreement that there must be a national minimum wage. They are now going to get it.

It may well be that this is an olive branch that government and business are extending to the unions in order to allow for some far more difficult discussions down the line. Broad reforms to labour regulation are going to be a hard sell, but they have to happen.

Could the national minimum wage be the teaspoon of sugar that is going to help that particular medicine go down?

Put simply, if there is going to be agreement on these reforms, everyone has to feel that they are getting something out of it. The unions now have a national minimum wage, which means that Ramaphosa can ask them to start compromising elsewhere.

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