Aug-Sept 2014 K.indd

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www.cosatu.org.za • AUG/SEPT 2014

would never work in South Africa “under any circumstances”! He, and his fellow ideological soulmates, haven’t bothered to look at contrary evidence from the international experience. A growing body of international economic opinion now agrees that governments can effectively use national minimum wages to combat poverty and inequality. In 2006, over 650 US economists, including fi ve Nobel prize winners, stated that increasing the national minimum wage would signi fi cantly improve the lives of low income workers and their families “without the adverse effects that critics have claimed”. The UK Low Pay Commission, responsible for setting national minimum wages, stated that their research could fi nd no evidence that minimum wages caused damage to the economy or jobs. Literature on the recent Latin American experience concludes that rapidly rising minimum wages have coincided with job creation, formalisation of work, and signi fi cantly contributed to reducing inequality and working poverty. A special focus on minimum wages in the conservative Economist (Nov 24 2012) concluded that “evidence is mounting that moderate minimum wages can do more good than harm”. In 2010 economists at UCT examined whether introduction of minimum wages through South African sectoral determination had an impact on employment, and to their surprise they found that minimum wages between 2001-2007 coincided with a net increase of 650 000 jobs over this period, and accounted for by fi ve sectors, despite farming experiencing a signi fi cant job loss. So the neo-classical economic myth that increasing minimum wages

people. Their propensity to spend on basic necessities, if linked to an appropriate industrial strategy, can lead to a massive economic impetus to kickstart economic activity. President Lula of Brazil, addressing the COSATU Executive in 2012, explained this point powerfully: “Once we put money in the hands of the poor, they started buying goods, more of which needed to be produced. … When workers and the poor started spending, the giant wheels of the Brazilian economy started turning.” Brazil’s deliberate policy of progressively raising the real value of the minimum wage was key to increasing income of the poor. Two thirds of Brazil’s reduction in inequality was due to the increased national minimum wage (ILO G20 Policy Brief). The massive increase in employment which followed this policy, dispels the myth that higher minimum wages automatically lead to job loss. The Brazilian experience shows an important relationship between increased domestic demand and potential for economic diversi fi cation and industrialisation. Conversely, poverty in South Africa and the Southern African region means a major repression of demand. Raising the income of working people is key to unleashing the trapped economic potential. The debate around the national minimum wage has to be understood in the context of these broader economic dynamics. by conservative economists creates the impression that introducing a national minimum wage will derail the economy. Recently one economist asserted crudely that regardless of the national minimum wage level, it would be catastrophic for employment, and Scaremongering tactics

to ensure that all workers, through their unions, are able to collectively negotiate better conditions of employment, irrespective of their sector. The national minimum wage is key to this agenda, because it establishes a minimum income fl oor. This counters the race to the bottom seen in the most vulnerable sectors. It can also provide a lever to recon fi gure the apartheid wage structure, with other measures aimed at creating greater income equity. These labour market interventions will promote decent work, and unleash the economy’s productive potential. Millions of South Africans face poverty and destitution through no fault of their own. Social protection measures should aim to ensure that all citizens are entitled to a basic fl oor of income, and provide access to a package enabling them to meet their basic needs, regardless of their circumstances. A national minimum wage is connected to this package, because it guarantees a minimum income to all families (and often extended families) who rely on a breadwinner. Contrary to the DA’s propaganda, unemployed people don’t want the employed to have lower wages, or less job security. As Jonny Steinberg points out “tell an unemployed woman in Pondoland that her brother on the platinum mine, who remits money home every month, should not be paid more, and she will tell you that you are mad.” (‘Opinion makers have blind spot on wages’ BD 24/1/14) Economic measures: following the global fi nancial crisis, recognition has grown that stimulating real economic activity, as opposed to fi nancial speculation, is the key to generating jobs and investment. An important element of this stimulus is raising the income of working

ECONOMY