Minimal wage insurance policies are usually aimed toward lowering poverty. But there may be little direct proof of this impact, particularly in creating international locations. And none for South Africa.
In a current paper, we take into account the revenue, employment and poverty results of the most important minimal wage enhance South Africa has ever seen. In 2013 the agricultural minimal wage elevated by about 50%, affecting almost all employees within the sector.
South Africa’s agricultural sector is a low-wage trade contributing about 2% of GDP. Over the past 4 many years the sector has shed jobs, and relied more and more on informal labour. Farmworkers have among the many lowest common wages within the nation, with poor residing and dealing circumstances. Whereas farmworkers account for lower than 5% of all employment, they comprise about half of employment in rural formal areas.
The agricultural minimal wage was first launched in 2003, and has been adjusted yearly in keeping with inflation. In November 2012 within the Western Cape province, employee protests shortly unfold, with the demand for a wage of R150 a day. South Africa’s labour minister compromised by growing the minimal wage from R69 to R105 a day in March 2013 (from $7.15 to $10.88 in 2013).
Such a big enhance may need been anticipated to result in job losses, with devastating penalties. That is what employers warned on the time – that the upper wages would wish to return from current revenue margins.
However there weren’t in actual fact large job losses. And we discovered that family revenue and poverty charges strongly benefited within the quick run. On the identical time, our outcomes additionally indicated low minimal wage compliance among the many lowest paid employees – employers didn’t adjust to the brand new minimal wage. This undermines the coverage.
It could even have lessened its unfavourable results as a result of employers who didn’t comply could have been the employers with the bottom revenue margins. If they’d complied, they may have needed to fireplace a variety of employees.
Our examine gives purpose for optimism in regards to the results of minimal wage insurance policies on poverty, whereas protecting in thoughts the advanced relationship of those insurance policies with compliance and institutional enforcement.
The 2013 hike
In our paper we doc the implementation of the brand new minimal wage.
Common hourly wages elevated sharply from round R7.50 in 2012 to R9.70 in 2013 after the minimal wage implementation, which exhibits the coverage had a transparent affect on employees’ wages.
Nonetheless, agricultural employment declined over the identical interval. Regardless of the employment loss, poverty dropped considerably, and the overall wage funds to employees (the wage invoice) rose.
However, these developments could not replicate causal results of the minimal wage. It is because there are a selection of options of agriculture that complicate the story.
Firstly, an vital characteristic of agriculture is the volatility of financial and agricultural circumstances, together with sensitivity to climate. Desk 1 exhibits that a lot of the employment decline between 2012 and 2013 seems to be pushed by an uncommon spike in employment in 2012, maybe reflecting such volatility.
Secondly, whereas common wages elevated, they have been nonetheless effectively beneath the brand new minimal wage. Analysis finished in 2012 documented low compliance with minimal wages in South Africa, particularly within the agricultural sector.
Thirdly, the typical change within the poverty price (the proportion of people who find themselves poor) will depend on who is assessed as poor. For instance, there was a lower of solely 4 share factors within the poverty price when classifying these with month-to-month revenue beneath R1,042 (US$110 in 2013) as poor (in comparison with a lower of 10 share factors when utilizing the next quantity).
Total, regardless of the massive enhance in common hourly wages and complete wage invoice offered in Desk 1, these options of the agricultural sector make causal claims difficult.
Measuring the causal impact
To higher perceive the results of the brand new minimal wage, we used knowledge from the Quarterly Labour Power Surveys, which is the official supply of labour market knowledge.
We tracked a consultant rotating panel of a couple of thousand employees who have been paid beneath the brand new minimal wage simply earlier than the coverage was applied, and in contrast their revenue and employment to simply after.
A employee who was once paid lots lower than the brand new minimal wage would must be paid much more for the employer to be compliant with the brand new minimal wage. We assessed the extent to which the modifications in incomes and employment coincided with the hole between a employee’s earlier wage and the brand new minimal wage.
On common throughout all employees, we estimated that the minimal wage elevated hourly wages by 5.6%, elevated the prospect {that a} employee stayed employed, elevated family revenue by about 6.3%, and decreased the poverty price.
Nonetheless, these results diverse by how a lot employees have been paid earlier than the brand new minimal wage. Employees paid just under the brand new minimal had the largest wage positive aspects, whereas, counterintuitively, those that have been initially the bottom paid employees had the smallest wage positive aspects.
These lower-paid employees on common had probably the most constructive employment results although, such that their wage and employment results offset one another. That’s, decrease paid employees have been extra more likely to maintain their jobs. Collectively then, employees throughout totally different ranges of revenue had equally massive constructive results on family revenue and poverty.
The place this leaves the talk
Small wage positive aspects for the lowest-paid employees signifies that minimal wage compliance was lowest the place it mattered probably the most.
Why might this have occurred?
One risk is what economists name “endogenous compliance”, which would scale back unemployment results. Employees, bosses, and enforcement authorities could “flip a blind eye” to minimal wage violations after they’re frightened that strict enforcement would trigger unemployment.
According to this, we discovered a lot weaker compliance in small corporations, the place we might in any other case anticipate probably the most unfavourable results on employment.
One other clarification is that the bottom paid employees have been the employees least in a position to power employers to conform, and these employers have been extra more likely to maintain them employed in consequence.
Total then, the results of the minimal wage have been strongly constructive. The largest limitation of our examine is that we thought-about solely the quick run. And whereas we discovered comparable results two quarters out, we left estimates of medium and longer run changes to future work.
These constructive short-run results of such a big coverage change present some optimism that there’s institutional area to considerably enhance the lives of poorly paid employees, whereas being cognisant of these left behind within the course of.
