THE BLOG

A Higher Minimum Wage Doesn't Reduce Poverty

We should rather focus on bringing median wages up through investment in education.

01/12/2016 05:57 SAST | Updated 01/12/2016 05:57 SAST
Siphiwe Sibeko/Reuters
Mineworkers gather at Wonderkop stadium outside the Lonmin mine in Rustenburg, northwest of Johannesburg January 27, 2014.

In mid-November, deputy president Cyril Ramaphosa stated that a panel of advisors had proposed a national minimum wage of R3,500. Ramaphosa highlighted that the proposed national minimum wage was aimed at reducing income poverty and inequality. While the aim of helping poor families is something we all want, the reality is that a minimum wage increase is very likely the wrong long term policy to target the reduction of poverty and inequalities in the country.

Today, millions of black South Africans do arduous work in jobs that pay too little and offer too few benefits. They work as maids, clean offices, as factory workers, miners and drivers. They work these jobs year after year, while caring for their children and parents, trying to save for their children's education, and paying their bills. And yet despite their best efforts, these low-wage workers fall further and further behind.

The government needs to actively evaluate a strategy and investment into the education and skills capacity building of the poor.

It sounds straightforward and very noble for government to legislate a higher wage so low-wage workers earn more, unfortunately, this oversimplification fails to account for a number of facts including who earns the minimum wage and the unintended consequences that result from minimum wage hikes. Increasing the minimum wage is an inefficient way to reduce poverty.

The challenges faced by the poor in South Africa go beyond the salary bracket that people fall into and relatively few of those falling below the poverty line actually receive the wage. Few individuals living in poverty work at minimum-wage jobs or any job at all. When the government imposes a higher minimum wage without corresponding productivity increases in the economy, employers will find ways to operate with fewer workers. The very people that the minimum wage is intended to protect may be the very people who may soon find themselves out of jobs, especially those who are in jobs that require "less skills". While the more productive workers gain through a higher wage, their gain comes at the expense of others who lose as a result of fewer employment opportunities. Young and low skilled workers will be the ones most adversely affected since they possess less job qualifications and experience.

The government needs to rather, actively evaluate a strategy and investment into the education and skills capacity building of the poor. There is a strong correlation between the educational attainment of the national workforce and median wages in the country. South Africa can build a strong foundation for economic success and shared prosperity by investing in education. As a long-term strategy providing expanded access to high quality education will not only expand economic opportunity for citizens, but also likely do more to strengthen the overall national economy than any legislated minimum wage increase will do.

The promise to low-skilled workers of a higher wage does not take into consideration that the promise cannot be kept if employers cannot profit from retaining those workers or hiring similar workers. In the long-term, it is more likely that jobs will be lost, not created; and unemployment will rise as more workers search for jobs but can't find any at the above-market wage. A well-formulated policy focused in on wider access to quality education and skills development should be a critical consideration if we are to overcome these challenges.