Minimum wages incentivise job cuts – let’s try something else

As the One Wage Campaign continues and strikes plague the agricultural sector for a higher minimum wage, I am struck by the fact that the de facto mode for seeking higher wages in this country is to use the proverbial stick rather than the carrot.

This tells me that we have both a trust and a belief system issue.

A belief system issue because those who are fighting for social justice apparently believe coercion is the better incentive to use on employers to obtain higher wages for workers.

Let’s consider domestic workers, of whom there are more than a million, and farm workers, since agriculture is still a labour-intensive industry in South Africa.

Using the proverbial carrot, a rewarding incentive rather than coercion, would lead to better outcomes and free up the market.

We live in a distressed macroeconomic climate where weak wage growth and increasing taxes are the norm.

Considering how many people are employed in these two sectors, a solution to the wage problem would be to declare payments to these workers tax deductible for their employers.

This would apply only up to a certain threshold and have the caveat that employers must formalise their payrolls and be able to provide a record of pay and additional protections for workers.

By easing the pressure of the boot on employers’ throats, government would need to employ less regulation to deal with the mistrust that exists between stakeholders in these sectors.

Creating mechanisms and protections that follow market principles has the potential to build trust and show that government intervention is not the only way to solve issues.

A standard minimum wage does not take into consideration the context and circumstances of different arrangements.

Some domestic workers use transport daily to and from work.

Some “live in” and receive “perks”, such as free internet, three full meals, free electricity and water – all at their employer’s expense.

Some employers go so far as to pay for the school uniforms and tuition fees of their domestic worker’s children, sometimes even arranging for them to attend the same schools as their own children.

Some domestic workers work for only a couple of days a week, and others a full week.

Then there are regional differences.

Pay for a domestic worker in Mthatha in the Eastern Cape (where my mom lives), for example, is very different to that in a wealthy suburb in Cape Town in the Western Cape.

Pay is influenced by how much the employer earns, the living costs of the different locales, and the employment climate.

Mthatha is a de-industrialising town with rampant unemployment, collapsing government services and precarious low-wage work.

Enforcing a “national” standard in that climate would decimate employment for domestic workers.

Employers struggling in a weak economy either forgo employing locals or resort to employing illegal immigrants.

Incentivising employers through a tax incentive scheme would mean some would pay their domestic workers more.

It would go a long way to create a market efficiency and put more money in the hands of low-wage workers.

As for the agricultural sector, the fourth industrial revolution looms large. Mechanisation in the commercial farming sector has already resulted in job losses.

According to a University of Stellenbosch management review (January-June 2018) done in conjunction with the Western Cape department of agriculture, precision farming is set to transform the sector through technologies such as geographic information systems, remote sensing technologies, robotics and big data.

The report anticipates higher yields, reduced costs (from labour layoffs) and higher profits for the commercial agriculture sector.

Imposing artificial minimum wages will incentivise the speeding up of this process and create a “digital barrier” for workers who would like to enjoy a secure future employment in that sector.

Imposing undue costs on employers has produced negative consequences for employment across several sectors in this country.

It is time to try something different, something based on market efficiencies rather than government impositions to secure employment for low-skilled workers.

• Vabaza is an avid writer and aspiring economist. The views expressed in this article are those of the author and not necessarily those of the Free Market Foundation

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