BUSA PRESENTATION ON MINIMUM WAGES

1. BUSA PRESENTATION ON MINIMUM WAGES PARLIAMENTARY HEARINGS Vanessa Phala: Executive Director 3 September 2014

2. Who we are? • Confederation of business organisations including Chamber of Commerce and Industry. • Voice of business in South Africa • Represent RSA businesses on macro economic issues at national and international levels. • Main aim is to ensure that business plays a constructive role in the country’s economic growth, development and transformation. • We want to create an environment in which businesses of all sizes and in all sectors can thrive, expand and be more competitive.

3. Who we are? • We represent Business at NEDLAC • Member of Organisation of Employers • Member of the SADC Employer Group • Member of the B20 • Member of the OECD Business Industry Advisory Committee

4. General Comments • BUSA • is committed to participating constructively in this issue • has just commenced with research into the national minimum wage looking at international and national experiences • at this stage, research us being finalised to inform the BUSA mandated position • We have, however, sought guidance from the ILO and the IOE and have some preliminary comments. • World Bank 2008 “Whether such a policy actually achieves its intended outcome has been the subject of great controversy for decades. “

5. ILO Conventions 131 and Recommendation 135 • Purpose: to give wage earners necessary social protection regrding minimum permissible levels of wages • Full consultation required with worker and employer representatives • Artile 3: Criteria to determine minimum wages includes • The needs of workers and their families taking into account the general level of wages in the country, the cost of living, social security benefits and the relative living standards of other social groups • Economic factors including the requirement of economic development, levels of productivity and desirability of attaining and maintaining high level of employment.

6. Basic Conditions of Employment Act Provisions • Section 54 (3) • When advising the Minister on the publication of sectoral determination, the Commission must consider in respect of a sector and area … • Ability of employers to carry on their business successfully • The operation of SMMEs and new enterprises • The cost of living • Alleviation of poverty • Conditions of employment • Wage differentials and inequality • Impact of proposed condition on employment or health, safety and welfare of employees

7. Existing Regulation • Regulatory system in place • We have a functioning system of sectoral minimum wages through sectoral determinations which provide for minimum wages per job category • Section 55(8) Amendment Act • ‘… the Minister may publish a sectoral determination that applies to employers and employees who are not covered by other sectoral determinations’ • We already have provision for a default minimum wage

8. Enforcement • Enforcement is a major problem • DPRU indicating that in 2007, 45% of workers were paid below the legislated minimum • Of the total labour force, • 50% are employed in firms of less than 50 people • Of which 80% are employed in firms of less than 20 people • Problem of enforcement must be innovatively tackled

9. Unemployment, Inequality and Poverty • Minimum wages are a blunt tool to address poverty. There has been significant inroads into poverty, which require sustaining • People living in extreme poverty in 2011 10.2 million, down 20.2% from 2006 • People living in moderate poverty in 2011, 23mil, down 45.5% from 2006 • Self reported hunger dropped from 30% in 2002, to 13% in 2011 • Social grants recipients rose from 2.5 mil in 1998 to 16.5m in 2014/5 • To sustain social grant support we need more people in employment (currently the tax payer base sits at about 5 million people)

10. Unemployment, Inequality and Poverty • Minimum wages set a floor for compliant employment, if set too high it becomes a ceiling for informal employment and can push more people into informality • The IOE states that particularly low skilled workers and youth are negatively affected if the minimum wage is set too high “Minimum wages may drive workers into ‘’uncovered” jobs”

11. Minimum Wage Setting • Consist of three aspects • remuneration for work performed • basic income • cost of production • National minimum wages should be set relative to: • Employment rates, productivity, employment of vulnerable groups, inflation, tax and social contributions • Differentiation and decentralisation via a sectoral system is important to take into account different costs of living in different areas, productivity levels and employer’s ability to pay (particularly small business)

12. Concluding remarks • Looking forward to engaging further on this matter • Ensure that we do not repeat the mistakes from the Agriculture wage setting at 52% which resulted in about 73 000 job losses • Look at how to strengthen currrent system and improve compliance through effective enforcement

13. Concluding remarks • Do not set wages too high so as to encourage informalisation. • High minimum wages would result in huge job losses • We need to fully understand the implications of minimum wage implementation so as to avoid unintended consequences. • The real challenge is the level at which to set the minimum wage

14. Concluding remarks • Biggest challenge is achieve a balance between protecting vulnerable workers and limiting potential negative economic consequences