Assessments of the impact of minimum wages on labour market outcomes in Africa are relatively rare. In part this is because the data available do not permit adequate treatment of econometric issues that arise in such an assessment. This paper attempts to estimate the impact of the introduction of a minimum wage law within the Agriculture sector in South Africa, based on 15 waves of the biannual Labour Force Survey (LFS), starting in September 2000 and ending in September 2007.
The chosen sample includes six waves before the legislation‟s effective date (March 2003) and nine afterwards. All 15 waves are pooled and treated as repeated cross sections over time. In order to assess whether the changes experienced by farm workers are unique, we identify a control group that has similar characteristics to the treatment group. Our econometric approach involves using two alternative specifications of a difference-in-differences model. We test whether employers reduced employment, and whether they responded at the intensive margin by reducing hours of work. The law also required non-wage benefits to be implemented, and we track the response here in the form of one such provision, namely that of a written contract.
The results suggest a significant reduction in employment in Agriculture from the minimum wage, an increase in wages on average, no significant change in hours worked and a sharp rise in non-wage compliance.
Written by Haroon Bhorat, Ravi Kanbur and Benjamin Stanwix – Development Policy Research Unit
Acknowledgements: The research, from which this paper emanates, was funded by the International Development Research Centre (IDRC).
The DPRU is a university-recognised research unit within the School of Economics at the University of Cape Town.
It conducts policy-relevant socioeconomic research in the fields of labour markets, poverty and inequality.