A minimum wage for South Africa

South Africa has struggled with unemployment for many years. Until 1994 there was not an accurate figure, but it was thought to be as high as 40% and  it has never been less then 20%. In addition those in work earned low wages, often as 'day labourers' often working just one or two days each week.

It is perhaps surprising in a country with a background of inequality and low employment that no minimum wage has been established. It is now proposed that one is set.

There are arguments for and against this measure.

It will establish a wage floor that will protect the low paid from exploitation. This is very important when people are desperate for work and employers will allow competition to cut wages to below a 'living wage' level. (In effect the profits of firms are being raised through this.) It will also go some way to reducing inequality in the labour market.

Against it are the point that it might lead to more unemployment if the rate is set too high. Also it does nothing to raise the income level of those who do not work.

It seems unlikely that the minimum wage proposed is too high as the government appear to be starting at a low wage, perhaps with the idea of raising it over time. It seems more likely that it will force businesses to pay more to workers and prevent them from exploiting the large pool of competing labour they draw on.

There will be winners and losers in this, but it does seem a long overdue measure.

The BBC cover the story here

The concept of a minimum wage arises in the micro section of the IB course, but the concept of inequality is part of the macro course. Therefore this is something that could easily be turned into a Macro IA. Consider also the effect of AD of raising wage levels and the effect on AS of raising firms costs.