Transforming South Africa's Wage Structure: National Minimum Wage Proposal

1. A national minimum wage for SOUTH AFRICA Input on behalf of Organised Labour- COSATU NACTU and FEDUSA 24 June 2015 Parliamentary Portfolio Committee on Labour

2. It is no longer if, but when… • Deputy President Cyril Ramaphosa: “We are involved in an historic endeavour. Not only are we called upon to give practical expression to one of the most important demands of the Freedom Charter. • We are also called upon to find an approach to a national minimum wage that significantly improves the lives of workers, that reduces inequality, that lifts people out of poverty, and that contributes to economic growth and job creation.”

3. Presentation • The context: a new transformation strategy • The challenge of working poverty and inequality • Minimum wages and employment • Wage setting mechanisms in South Africa • Alternative policy design- a National Minimum Wage • Strategies for transforming the wage structure • Enforcement and implementation • Appendix: The Nedlac negotiations

4. 1. The context • Recognition that post 1994, we have not fundamentally transformed the inherited labour market structure, and South African workers continue to experience excessive levels of income inequality, working poverty, and unemployment. • Proposals aim to transform the apartheid wage structure, and introduce a coherent wage solidarity policy. • While this submission is on behalf of organised labour, it is important to recognise that we are working closely with the Nedlac community constituency

5. Current challenges in South Africa • South Africa has not had a coherent wage policy • Collective bargaining is under attack. • The apartheid wage structure is not fundamentally altered: majority of black workers, particularly in the private sector, continue to live in poverty. • Minimum wages in sectoral determinations, and many bargaining council agreements are way below the Minimum Living Level (about R4500 to R5500 pm). • There are huge, & increasing, inequalities between levels of the wage structure: top, middle & bottom; & between different sectors.

6. Summary of proposals The labour movement is calling for a national wage, social protection, & economic policy to address inherited inequality & poverty in the labour market. Proposes 4 pillars : • Adoption of a legislated national minimum wage (NMW); • New Collective bargaining strategies to reconfigure the wage structure, based on comprehensive centralised bargaining; • A campaign for comprehensive social protection; • This package should connect to appropriate economic strategies aimed at promoting industrialisation and decent work

7. The National Minimum Wage & wage solidarity • The National Minimum Wage , combined with restructured CB, should be consciously designed as part of a South African wage solidarity model, to • progressively increase real minimum wages, and reduce gaps in overall wage levels • improve pay for all those in the bottom half of the wage structure.

8. 2. The challenge of working poverty and inequality According to the latest rebased Stats SA figures, a worker supporting four dependents in 2014 needed to earn R946 per family member, or at least R4730 per month to save his or her family from poverty

9. Snapshot of working poverty • In 2014, according to the QLFS (Quarterly Labour Market Survey) 50% of all South African employees reportedly* earned below R3033 per month (the median); • In 2014 50% of women workers earned* below R2600 per month; • In 2014 50% of African workers earned* below R2800 per month; • In 2013 50% of workers in the formal non-agricultural sector earned below R 4333* per month; • In February 2014, according to the QES (Quarterly Employment Survey) the average wage for all workers in the formal non-agricultural sector, including high paid workers, was R14731. *Underreporting: there is a concern amongst researchers that QLFS figures may underreport real wages by at least 40%. Van der Berg found that government payroll data indicates public sector teachers’ gross earnings were 40 % higher than household surveys suggest, the same ratio as in the mining sector. Even if the 2014 median was inflated by 40% however, at R4246, the majority of workers still fall below the poverty line.

10. Median earnings- whole economy The median wage in 2014 fell by more than 10% in real terms from 2012. Source Stats SA 2014 Labour Market Dynamics

11. Median earnings and race Stats SA 2014

12. Median earnings and gender Stats SA 2014

13. Median earnings: formal non agricultural sectors

14. Average earnings: formal non agricultural sectorsSource: QES, Stats SA

15. Wage inequality • Why is there such a huge gap between the average wage in the formal non-agricultural sector of R14731(Feb 2014), and the median wage in that sector of R4333 (2013)? • Reflects massive inequalities in wage structure. • Internationally the minimum wage is 40% of the national average wage. In South Africa it is less than 20%, in current prices (graph below contains figures for 2006).

16. Minimum: average wage ratio extremely low OECD, 2010. Tackling Inequalities in Brazil, China, India and South Africa. Paris: Organisation for Economic Co-operation and Development.

17. The wage gap is growing The wage gap between the top and the bottom is increasing at an alarming rate: in 2010 the top 5% earned around 30 times more than the bottom 5% employees. By 2014, this had increased to almost 50 times. In the space of four years! Table 4.12 (Stats SA 2014 Labour Market Dynamics)

18. Wage income key source of inequality • Leibbrandt et al (2012): ‘the labour market is the driving force behind aggregate inequality in the country’; between 1993 and 2008 wage income (including self-employment income) accounted for 85% to 90% of inequality. • Research by DPRU: 2/3 of workers covered by Sectoral Determinations in 2007 were living in poverty. • Labour has received a decreasing portion of national income over the last 20 years, particularly low paid workers; and renumeration has lagged behind productivity- see below.

19. Labour productivity and real wages . Burger, P., 2015. Wages, Productivity and Labour’s Declining Income Share in Post-Apartheid South Africa. South African Journal of Economics, 83 (2), 159–173.

20. 3. Minimum Wages and Employment: Evidence • General: • “evidence is mounting that moderate minimum wages can do more good than harm”– The Economist, Nov 24 2012 • Minimum wages significantly improve the lives of low income workers and their families “without the adverse effects that critics have claimed”– 650 leading US economists • The UK Low Pay Commission, responsible for setting national minimum wages, stated that their research could find no evidence that minimum wages caused damage to the economy or jobs. • Latin American experience refutes the alleged trade off between MW’s and employment in practice. Brazil saw the creation of over 17 million jobs coincide with large real increases in minimum wages (see international appendix). Uruguay increased the NMW from US$100 in 2003 to $500 in 2014. Yet unemployment in Uruguay is now at historically low levels. (ILO 2014 CAS report)

21. Local studies • UCT’s DPRU found, in a study conducted for the Department of Labour in 2010 , that between 2001-2007, after the introduction of higher minimum wages through Sectoral Determinations, net employment in the affected sectors actually increased by over 650 000 workers, from 3,45 million to 4,1 million, despite lost farm worker jobs. • Bhorat et al. (2013): no negative impact on retail and wholesale, domestic workers, forestry, taxi workers, and private security • Bhorat et al. (2013): negative impact in agriculture , but latest statistics seem to contradict this – see below

22. Low wages don’t create jobs • Conversely, low and declining wages don’t create employment: real wages of low-skilled workers have fallen since the 1990’s, but jobs for the low-skilled have shrunk by nearly a million. • Yet 2.5 million jobs have been created for higher paid higher-skilled workers over the same period – despite large increases in real wages.

23. Other factors are important in determining employment levels • There is no mechanical relationship between the level of employment and the level of wages. Employment performance is explained by various economic factors. Sectoral conditions, industrial strategy, trade dynamics etc, play a key role in determining how any sector performs. Therefore wage policy must be combined with appropriate macro & sectoral policies to have the desired employment impact • Agriculture: State support for farms has declined to very low levels – with the value of producer support as a share of the value of total gross farm receipts being about 3% in 2008–2010, well below the OECD average of 20%*. • Clothes and textiles: Turkey’s clothing and textile sector consistently outcompetes South Africa’s despite Turkish wages being 24% to 41% higher in 2011*. • *Source: G Isaacs NMW Research Initiative

24. The myth that rising minimum wages must lead to job loss is also not true in agriculture 2012 Strikes & 50% rise in min wage April 2013 Increase in agricultural employment 2012 –15: Thousands: 195  Percent: 22 Source: Stats SA, Labour Dynamics 2014 & QLFS Q1, 2015

25. 4. Wage setting mechanisms in SA • Bargaining Councils (BC’s) only cover about 2,4 million workers; and Sectoral Determinations (SD’s) 3.5 million (out of 10,8 million formal sector workers). • Multiple, low, minimum wages: Some set through Collective Bargaining, including 47 Bargaining Councils (BC’s); some by government through 11 sectoral determinations (SD’s); and some through agreements at company level. There are 124 minimum wage schedules in SA. • No national approach. Fragmentation, and technocratic processes eg in Employment Conditions Commission, which sets statutory MW’s, disadvantages workers, and assists powerful interests. • Many workers covered by MW’s getting stuck at level of very low minima & remain in poverty. Low levels of enforcement. • Very low: compared to guide of R4000 in 2011 as Minimum Living Level (MLL), in 2011 average minimum for SD’s R2118;& R2725 for BC’s. Only public sector, most mining, & some manufacturing paid more than R4000. • Huge variation in MWs’ between and within sectors. No coherent wage policy governing MWs

26. Proliferation of sectoral minimum wages Minimum Wage Schedules Across Select African Countries Source: DPRU, 2015 • SA has the highest number of minimum wage schedules compared to • other African countries This has implications for compliance and enforcement 26

27. Collective Bargaining Coverage . How salary increment was negotiated – Q4, 2014 Source: QLFS, Q4, 2014 17

28. Sectoral Determination Minimum wages Source: Jane Barrett, Cosatu, 2015 20

29. Do workers receiving SD minima escape poverty? Source: Gilad Isaacs Wits NMW Research Initiative

30. International experience • See separate document to be circulated to members later. • It is important to briefly look at the Brazilian experience (information taken from expert presentation to international NMW workshop on the 20th June 2015):

31. Latin America: average real MW 4.6 % real increase per annum

32. Brazil: real Minimum Wage increases

33. Brazil: recent evolution In U$ PPP

34. Level of Brazilian NMW Note on current level of Brazilian NMW in South African Rand: NMW in 2015 is 788 Brazil R$ At the beginning of 2015 this would have been equivalent to about R3800 But because of the depreciation of currency now around R3110

35. Brazil: Problems predicted by the critics • Increase in inflation rates • Rise in unemployment • Increase in the fiscal deficit (on account the social security system) • Increase of labor informality • Decline in unionization

36. The results (1) The inflation rate fell since 2002,& under control Problems expected by the critics

37. The results (2): unemployment fell %

38. Theresults (3):The fiscal deficit didn’t rise Net public sector debt (GDP %)

39. The results (4) Formality in the labor market has increased

40. The results (5): Unionization increased for low wage workers % (Units of M.W.)

41. The results (6):

42. The results (7): Reducing inequality

43. How to explain this success? • Studies of the IMF, the World Bank and other Brazilian research centers point that about 60% of the reduction in inequality was due to the minimum wage rise policy. • But that does not mean that such policy can achieve these results in isolation. • A set of other factors were crucial too.

44. Concurrent factors: Institutional • The Brazilian Labour Justice and the system of punishments and sentences for non-compliance; • The link between the minimum wage and the social security system. • Tax relief for micro and small entrepreneurs who formalize their employees - the same for domestic employers.

45. Concurrent factors: Economical • The monetary stabilization; • The commodities boom (current account surpluses); • The fall in the price of manufactured goods; • The recovery of the investment levels; • Rise of credit • Rise of public investments • Employment growth (moving closer to the full employment); • Average rates of GDP growth of 3.5% for several years

46. Concurrent factors: Political • The discomfort produced by neoliberal policies of the 90s; • The national government under the direction of a strong Labour Party; • The support of the social movements and the trade unions; • The historical legitimacy of Lula as a workers leader and a recognized negotiator.

47. Some lessons from the ILO workshop The Deputy President convened a workshop of international experts on 20 June 2015, led by the ILO. Inputs suggest that: • The NMW has been successful virtually everywhere it has been introduced • Complex systems with multiple wage levels are difficult to implement and enforce • In most cases the NMW has been introduced in the face of protests from employers and conservative economists. This should not prevent progress in taking the NMW forward. • Dire predictions about job losses, and other dangers of the NMW, have failed to materialise • Despite fears about extending the NMW to less developed regions within a country, the most effective systems have been those applied throughout a country • Careful design of the system is important

48. Some lessons from the ILO workshop II • There must be regular, real increases in the NMW, and the principle of wage solidarity (highest increases for the lowest paid) should be followed • There needs to be a conscious programme to use the NMW to ensure that working families are removed from poverty • The NMW is a wage floor, and can’t substitute for living wage struggles, and collective bargaining in the different sectors. However it does provide a springboard for these. • Capacity to implement and enforce, and political will to do so, is critical. • The NMW has played an important role in the combating of poverty and inequality, but needs to be combined with a package of other measures to have greatest effect.

49. 5. Policy Design Questions Some of the questions of policy design include: • How would the NMW relate to other wage setting mechanisms such as collective bargaining and sectoral determinations? • Should the NMW be implemented universally or should there be a transition in certain sectors ie a phasing in? • Should it include all sectors and employers or allow for some exemptions and exceptions? • Should it be set hourly, daily, weekly, monthly? • How and by what amount should the NMW be increased, how often, and what process should be followed? • Should businesses be offered incentives to co-operate in implementation of the NMW? • What institutions and capacity need be put in place to oversee implementation of the NMW and effective enforcement and monitoring? Many of these issues are still being discussed at Nedlac.

50. Emerging agreements on the NMW Despite many disagreements and difficulties, we are moving towards agreement on elements of the NMW architecture, and have now agreed on the principle of a National Minimum Wage, including the following, as outlined by the Deputy President on Saturday 20th June: • The national minimum wage shall be the legal floor for a defined period of time, guaranteed by law, below which no employee may be paid in South Africa. • A national minimum wage will apply to all employees, both in the public and private sectors, unless provided for otherwise by an exclusion, phase-in or phase-out in an upfront agreement.