A National Minimum Wage for South Africa

1 A National Minimum wage for South Africa 2016 RECOMMENDATIONS ON POLICY AND IMPLEMENTATION National Minimum wage PANEL REPORT TO THE DEPUTY PRESIDENT 2 CONTENTS 1. EXECUTIVE SUMMARY .. 7 LANDSCAPE AND CONTEXT .. 7 WHY A National Minimum wage ? .. 7 INTERNATIONAL EXPERIENCE .. 8 THE ADVISORY PANEL PROCESS AND CONSIDERATIONS .. 8 THE INITIAL LEVEL FOR THE National Minimum wage .. 9 ADJUSTING THE Minimum wage .. 11 INSTITUTIONAL ARRANGEMENTS FOR IMPLEMENTATION AND ADJUSTMENT .. 11 OTHER POLICY ISSUES FOR CONSIDERATION .. 12 SUMMARY .. 13 2. INTRODUCTION .. 14 CONTEXT .. 14 POLICY PRONOUNCEMENTS .. 14 ADVISORY PANEL.

2 15 STRUCTURE OF THE REPORT .. 17 3. INTERNATIONAL STANDARDS AND TRENDS IN Minimum wage POLICY .. 19 INTRODUCTION .. 19 OVERVIEW .. 19 THE ROLE OF EVIDENCE IN SETTING A Minimum wage .. 20 ILO CONVENTIONS AND THE EVOLUTION TOWARDS BROAD COVERAGE .. 21 THE DIVERSITY OF Minimum wage SYSTEMS .. 22 WHO SETS THE Minimum wage ? .. 24 ENFORCEMENT AND AWARENESS RAISING .. 24 AT WHAT LEVEL ARE Minimum WAGES SET? .. 25 RELATIONSHIP BETWEEN THE NMW AND COLLECTIVE BARGAINING .. 28 ADJUSTMENTS .. 30 MONITORING THE EFFECTS OF THE Minimum wage .. 30 4. A Minimum wage IN CONTEXT: THE South AFRICAN ECONOMY AND LABOUR MARKET.

3 32 INTRODUCTION .. 32 ECONOMIC CONTEXT .. 32 DISTRIBUTION OF LOW PAY .. 38 SPECIAL VULNERABLE GROUPS .. 46 Minimum wage REGULATION IN South Africa .. 52 CONCLUSION .. 58 5. CHOOSING THE LEVEL, AND TRANSITIONAL ARRANGEMENTS 59 INTRODUCTION .. 59 OVERVIEW .. 59 LEVEL AND TRANSITIONAL ARRANGEMENTS .. 60 KEY CONSIDERATIONS .. 64 OTHER CONSIDERATIONS .. 78 6. ADJUSTING THE National Minimum wage .. 80 INTRODUCTION .. 80 OVERVIEW .. 80 PROPOSED PROCESSES FOR ADJUSTING THE National Minimum wage .. 81 PERIOD OF ADJUSTMENT .. 83 3 REQUIRED DATA AND RESEARCH CAPACITY TO SUPPORT THIS APPROACH .. 84 7.

4 RECOMMENDATIONS FOR THE INSTITUTIONAL SET-UP OF THE NMW SYSTEM .. 87 INTRODUCTION .. 87 RECOMMENDATIONS .. 87 CONSIDERATIONS INFORMING THE OPTIMAL DESIGN FOR AN NMW SYSTEM .. 87 DECISION-MAKING AND GOVERNANCE STRUCTURES WITHIN THE NMW SYSTEM .. 90 AN INDEPENDENT AUTHORITY TO MONITOR IMPACT AND ADJUST THE NMW .. 91 EXISTING LABOUR MARKET INSTITUTIONS AND THE NMW .. 94 LEGAL AND DEFINITIONAL ISSUES .. 96 SCOPE OF APPLICATION OF THE NMW .. 97 DISPUTE RESOLUTION PROCESSES AND ENFORCEMENT PROCEEDINGS .. 98 THE IMPORTANCE OF PUBLIC CAMPAIGNS, A POSITIVE PUBLIC DISCOURSE AND GOOD GOVERNANCE .. 100 LEGISLATION THAT MAY REQUIRE REVISION.

5 101 8. FURTHER MEASURES TO ADDRESS INEQUALITY AND POVERTY 103 INTRODUCTION .. 103 ADDITIONAL MEASURES THAT COULD BE IMPLEMENTED TO REDUCE wage INEQUALITY AND WORKING POVERTY .. 103 PROMOTING COLLECTIVE BARGAINING ALONGSIDE A National Minimum wage .. 103 RATIFY ILO CONVENTION 131 OF 1970 .. 104 LABOUR MARKET POLICY .. 104 INTERVENTIONS TARGETING THE COST DRIVERS OF POOR HOUSEHOLDS AND VULNERABLE FIRMS 106 INDUSTRIAL AND PRODUCTIVITY-FOCUSED POLICY .. 106 PRIORITISATION OF R&D EXPENDITURE AND MONITORING .. 106 EDUCATION AND INVESTMENT IN HUMAN CAPITAL, AND PHYSICAL AND DIGITAL INFRASTRUCTURE .. 107 9. SUMMARY OF THE PANEL S RECOMMENDATIONS.

6 108 10. REFERENCES .. 111 11. APPENDIX 1: CALCULATING WAGES .. 115 A BASIC wage : WHAT IS INCLUDED? .. 115 A PREMIUM FOR PART-TIME WORK? .. 119 12. APPENDIX 2: ILO C131 - Minimum wage FIXING CONVENTION, 1970 (NO. 131) .. 120 PREAMBLE .. 120 ARTICLE 1 .. 120 ARTICLE 2 .. 121 ARTICLE 3 .. 121 ARTICLE 4 .. 121 ARTICLE 5 .. 121 ARTICLE 6 .. 122 ARTICLE 7 .. 122 ARTICLE 8 .. 122 ARTICLE 9 .. 122 ARTICLE 10 .. 122 ARTICLE 11 .. 122 ARTICLE 12 .. 123 4 ARTICLE 13 .. 123 ARTICLE 14 .. 123 13. APPENDIX 3: ILO R135 - Minimum wage FIXING RECOMMENDATION, 1970 (NO. 135) .. 124 PREAMBLE .. 124 I. PURPOSE OF Minimum wage FIXING.

7 124 II. CRITERIA FOR DETERMINING THE LEVEL OF Minimum WAGES .. 124 III. COVERAGE OF THE Minimum wage FIXING SYSTEM .. 125 IV. Minimum wage FIXING MACHINERY .. 125 V. ADJUSTMENT OF Minimum WAGES .. 126 VI. ENFORCEMENT .. 126 14. APPENDIX 4: ILO C026 - Minimum wage -FIXING MACHINERY CONVENTION, 1928 (NO. 26) .. 127 PREAMBLE .. 127 ARTICLE 1 .. 127 ARTICLE 2 .. 127 ARTICLE 3 .. 127 ARTICLE 4 .. 128 ARTICLE 5 .. 128 ARTICLE 6 .. 128 ARTICLE 7 .. 128 ARTICLE 8 .. 129 ARTICLE 9 .. 129 ARTICLE 10 .. 129 ARTICLE 11 .. 129 5 Tables in the Report Table 1: The National Minimum wage .. 9 Table 2: Annual percentage change in GDP and consumer price inflation in selected regions/countries, IMF forecasts, 2014 2017.

8 33 Table 3: Macroeconomic performance and projections, 2012 2018 .. 33 Table 4: The South Africa Labour Market .. 34 Table 5: Household indicators .. 35 Table 6: Poverty lines (per capita per month in Rands) .. 36 Table 7: Inequality 2006 to 2011 .. 37 Table 8: Mean and median wages under various assumptions .. 39 Table 9: Minimum wage levels and the wage distribution .. 40 Table 10: Employment by firm size .. 47 Table 11: Distribution of impact of an NMW on average wages and number of affected workers by firm size .. 49 Table 12: Analysis of wages and affected workers by firm size and industry .. 50 Table 13: Median monthly wage by payroll centre size.

9 51 Table 14: EPWP wage rates .. 52 Table 15: Sectoral determination overview .. 54 Table 16: Wages in SD sectors .. 55 Table 17: Uncovered workers by industry .. 56 Table 18: The National Minimum wage .. 59 Table 19: Updated poverty lines (February 2016) .. 64 Table 20: Household size, distribution and income across quintiles .. 65 Table 21: Observed ratios to means and medians .. 69 Table 22: Mean and median wages in South Africa .. 70 Table 23: Estimated mean and median of wages as at July 2016 .. 70 Table 24: Impact of NMW setting on sector wages .. 72 Table 25: Factors considered in Minimum wage setting in the UK .. 81 Table 26: Legislation requiring review.

10 101 Table 27: Pay ratios .. 105 6 Figures in the Report Figure 1: Minimum wage levels in selected European countries .. 27 Figure 2: Minimum wages in selected emerging economies .. 27 Figure 3: Distribution of wages .. 29 Figure 4: Sources of household income .. 36 Figure 5: Long-term trends in real earnings from the Post Apartheid Labour Market Series (Palms) .. 38 Figure 6: Cumulative density function of earnings calculated as hourly earnings for all workers .. 43 Figure 7: Sectoral wage distribution .. 44 Figure 8: Sectoral wage distribution by smaller SIC classification .. 45 Figure 9: wage distribution by disaggregated manufacturing sector.