A report by the National Minimum Wage Research Initiative at the University of the Witwatersrand is promoting a minimum wage in South Africa.
According to the report, establishing a national minimum wage can be instrumental in reducing the inequality gap and poverty, and can support economic growth.
The National Minimum Wage for South Africa report shows that the level of economic output would be 2.1% higher with a national minimum wage, beginning at levels between R3,500 and R4,600.
The research claims that a minimum wage can be implemented without significant employment effects.
National minimum wage will hurt South Africa: Dawie Roodt
Speaking on Business Day TV, Dawie Roodt, Chief Economist at Efficient Group, disputed the findings, arguing that a minimum wage will lead to job losses and increased poverty in South Africa.
Roodt said moving money from “bad capitalists” to give it to workers who will spend more to stimulate the economy is a bad idea.
This approach is a way to stimulate demand in the economy, which is not needed. “I would argue that we do not need stronger demand in the economy,” he said.
“We have excessive demand in South Africa, which is shown by the country’s very large current account deficit,” said Roodt.
Roodt said if you take money away from capitalists, or the so-called hoarders, it will lead to lower savings and higher interest rates. This is not good for the economy.
Roodt also dismissed the argument that a minimum wage will decrease inequality. He said the reason for inequality in South Africa is because so many people are unemployed.
Another reason is the fact that the state is a large employer, and that it overpays its employees.
Roodt was adamant that a minimum wage will increase unemployment.
“A minimum wage of R4,000 will lead to huge levels of unemployment, which the country simply cannot afford,” said Roodt.
Debate on productivity
The report suggested that higher salaries also lead to higher productivity by workers, which compensates businesses for the higher costs.
Roodt said this is not true. He said a major reason for low productivity in South Africa was the “terrible state of our education system”.
“If you want to improve productivity levels, improve education and skills development in South Africa,” said Roodt.
He said businesses would love to pay their workers more, as long as this was accompanied by higher productivity.
“Unless you improve education, you are simply not going to get higher productivity and higher wages.”