Presentation by Jeremy Marillier Executive Director FISHSA /Vice-Chair Human Resource Committee Cape Chamber of Commerce 22 September 2014

Transcription

1 Presentation by Jeremy Marillier Executive Director FISHSA /Vice-Chair Human Resource Committee Cape Chamber of Commerce 22 September 2014

2 Need for balanced debate Economist and Nobel Prize laureate James M. Buchanan remarked to the Wall Street Journal in 1996 that "Just as no physicist would claim that "water runs uphill, no selfrespecting economist would claim that increases in the minimum wage increase employment." Of course this statement remains broadly true today, but the advent of better data, improved statistical techniques and the proliferation of country studies have made economists far more careful about pre-judging the impact of minimum wages on employment and wages

3 Pro s and Con s Increasing the minimum wage helps ensure employees are rewarded for their hard work and boosts the incomes of low-wage workers something that is sorely needed to increase consumption and get the economy going. It reduces turnover and helps employers compete on a more level playing field, forcing firms away from a low-road, lowhuman capital investment model to one where workers stay attached to the workforce and employers make stronger investments in training. Taxpayers are better off because they have to bear fewer of the negative externalities from low-road employers

4 Need to reduce income inequality if left solely to markets to dictate wage level inequality would persist if not worsen. Appropriate role of state but must be part of package of measures to address inequality holistically.

5 Brazilian experience mechanism based on GDP performance and inflation was approved for indexing the rate up to Between 2002 and 2010 the minimum wage increased by some sixty percent, but productivity in Brazil increased more than wages did: Professor João Saboia from Rio de Janeiro Federal University s Instituto de Economia-A number of studies have shown that increasing the minimum wage over the last few years had a big influence in reducing inequality and helped improve distribution of wealth around the country. Staying with the same policy will continue this favorable trend,

6 Brazil cont.. The negatives: minimum wage will prove favorable for some sectors such as banking, technology, construction, manufacturing and the civil service, it could bring significant negative consequences for other labor-intensive, low-skilled sectors, such as shop workers and cleaners, and those requiring less work experience. Brazil has fewer people earning just the minimum wage.

7 No free lunch!!!! There is no "free lunch" when the government mandates a minimum wage. If the government requires that certain workers be paid higher wages, then businesses make adjustments to pay for the added costs, such as reducing hiring, cutting employee work hours, reducing benefits, and charging higher prices. These behavioural responses usually offset the positive labour market results that policymakers are hoping for. particularly damaging in today's sluggish economy policies that generate faster economic growth, which would generate rising wages and more opportunities for all workers. -

8 Collateral damage While they are often low-paid, entry-level jobs are vitally important for young and low-skill workers because they allow people to establish a track record, to learn skills, and to advance over time to a better-paying job. Thus, in trying to fix a perceived problem with minimum wage laws, policymakers cause collateral damage by reducing the number of entry-level jobs empirical research generally finds that the higher the minimum wage increase is relative to the competitive wage level, the greater the loss in employment opportunities. In these tough economic conditions, employers are simply not going to hire workers whose labour produces less than the cost of hiring them

9 Minimum Wages and Poverty minimum wage will lift some families out of poverty, other low-skilled workers may lose their jobs, which reduces their income and drops their families into poverty If a minimum wage is partly or fully passed through to consumers in the form of higher prices, it will hurt the poor because they disproportionately suffer from price inflation -

10 Practical Issues What about industries in distress exemptions status The real question is at what quantum do you set the NMW across sectors. Consider possible dis-employment effects if any? Different sectors have varying remuneration structures depending if shore based or fleet. Offshore, Commission purely, others seasonal etc. Look at each industry examine labour and employment trends- address affordability issues- evidence basis. Conduct rigorous economic modelling- labour elasticity, varying responses NMW yes, but also try and improve productivity levels. NEDLAC process likely heated and fiercely divergent views- probably need for social compact What does empirical studies/literature say about SMME impact and need for job maintenance. Will it foster greater informality of the workforce? Can South African economy and Corporate South Africa given its current economic growth low growth environment, afford a NMW, look at other policy instruments etc.