To even the casual observer, there is no doubt that the notion of a national minimum wage is a politically contentious issue. It always has been. When it was first introduced in South Africa as a goal of workers in the 1930s, articulated in the Freedom Charter, and reiterated again in the era of transformation, it was intended as a means to level the playing field for workers at the bottom of the income distribution.

More than 20 years into South Africa’s new democracy, the instruments for wage determination in the labour market have yet to lift all workers out of poverty and yield a more equitable distribution of wealth. Successive rounds of initiatives, efforts, discussion and debate to spur growth have taken place, often targeting the labour market as the chief obstacle to a desired trajectory, or pinning hopes on its deregulation to unleash employment creation, investment, growth and economic stability. Though it is abundantly clear that labour market transformation has always been a key prerequisite to the new dispensation promised by postapartheid South Africa, apartheid’s legacy of poverty, discrimination and inequality has proven difficult to dismantle.

In recent years, the government has given impetus to overcoming the constraining threeheaded hydra of poverty, unemployment, and inequality in order to improve the economic position of the working poor and their families, and to improve economic outcomes for the economy as a whole. Importantly, discussion and debate among stakeholders, including constituent representatives at NEDLAC have embarked on structured engagement that has the potential to move the process forward. However, as the stakeholders at the bargaining table can attest, adherents and detractors often have visceral reactions to calls for a national minimum wage, often without ample information or understanding of the full effects that such a policy could have. This report attempts to fill that void by examining the consequences of introducing a national minimum wage in South Africa.

To interrogate and understand the impact of a national minimum wage policy, economic modelling techniques are used to quantify the potential impact of introducing a national minimum wage in South Africa. The ADRS Dynamically Integrated Macro-Micro Simulation Model of South Africa (DIMMSIM) is the model used to run simulations on alternative minimum wage scenarios, and to generate forecasts of likely impacts on a range of macroeconomic variables and poverty and inequality indicators.

This report thus examines the likely consequences of introducing a national minimum wage in South Africa. In order to do so, it will first review representative literature, before proceeding to describe the report’s empirical methodology. We then describe the minimum wage scenarios that are tested followed by an analysis of the simulation’s results and concluding remarks. The goal of the paper is not only to assess the potential impact, but ultimately to help assess whether instituting a national minimum wage is good economic policy.

Report by Wits University's National Minimum Wage Research Initiative