Will the planned implementation in South Africa of a minimum wage lead to significant job losses among small businesses or will it as some assume, have little negative effect?
An advisory panel set up in August by Deputy President Cyril Ramaphosa to probe a national minimum wage, believes a minimum wage of R20 ($1.40) an hour or R3,500 a month may have a significant effect among those with fewer than 10 employees.
In a report released on Sunday, the advisory panel (its chair Imraan Valodia is pictured above) suggests that employers of such firms should be given a three-year reprieve from when the national minimum wage comes into effect and that exemptions also be allowed.
Small business association Nafcoc said this week however that a national minimum wage was a “disaster” the country cannot afford. Other commentators, such as the DA MP Toby Chance, also cautioned that it would place an additional burden on small businesses.
In its report the advisory panel noted that there are over 4 million employees in firms with between one and nine employees, and a further 1.9 million in firms of between 10 and 19 employees.
South Africa already has a number of minimum wages dispensations specific to certain business sectors. The report says about half of employees in firms employing fewer than 10 people and just over three quarters of firms employing between 10 and 19 people are employed in sectors covered by these sectoral determinations.
Significant variation in pay
The panel's report notes that in agriculture, contract cleaning, hospitality, taxi, and wholesale and retail, more than 50% of firms have fewer than 50 employees.
But it says data suggests that it is not true that all small firms support low-wage workers.
The report's authors say data presented by the National Treasury, derived from the Quarterly Labour Force Survey, suggest that a significant number of small firms would be affected by the introduction of a minimum wage above R3,000. Most affected would be firms with fewer than 20 employees.
“For example, for a wage of R3,189, just over 1.45 million workers would be affected, while the average wage increase would be around 23% for firms with less than 10 workers and 18% for firms with between 10 and 20 workers.”
It says in firms with fewer than 20 employees, retail and community services are notably affected, as are agriculture, manufacturing, business services and construction.
Extra year of phase-in
The panel wants to allow businesses a two-year phase-in period to meet the national minimum wage.
However it says because in general smaller firms are less easily able to adjust to policy measures, enterprises employing fewer than 10 employees should be granted one additional year with technical assistance before they must comply or face penalties.
“In other words, for enterprises employing less than 10 workers, penalties would only apply in 2021,” the panel suggests.
Furthermore, the panel believes that the general exemption procedure is more important for smaller enterprises than large enterprises. The panel stresses the need for “modernised administration” of the national minimum wage system if the objectives of the system are to bear fruit.
While international evidence (including a recent literature review on emerging economies) suggests that the imposition of a minimum wage doesn't lead to significant joblessness, many in South Africa aren't so certain.
With unemployment touching a 13-year high of 27% in the last quarter, introducing a national minimum wage could constrain small firms, which might instead hold off making new hires or resort to more informal hiring methods.
Timm writes on small business. Click here to download the National Minimum Wage advisory committee report. Follow Small Business Insight on Twitter at @Smallbinsight.
Stephen Timm is a