THE MINIMUM WAGE

As we enter a new financial year, with discussions on a salary review commencing in different sectors, there seems to be a raging debate on a ‘minimum wage’ accompanying this year’s discussions.

I will begin by differentiating between minimum wage and the notion of a national minimum wage. A minimum wage is defined as the lowest wage permitted by law or by a special agreement (such as one with a labour union). The minimum wage is dependent on demographic and social attributes of each unit of labour and also on the sector of employment. A national minimum wage, on the other hand, is the minimum pay per hour almost all workers are entitled to.

Eswatini setting

The prevailing situation in Eswatini is that of a minimum wage and not that of the national minimum wage. The setting of wages in Eswatini is determined under the confines of the Wages Act of 1964, which sets up a Wages Council to analyse and set the minimum wage per sector. In our case there is no national minimum wage, it is sector specific as determined by the Wages Council, taking into consideration specific dimensions within the sector and the skills level within each sector. Eswatini’s minimum wage rate currently stands at E531.60 for a domestic worker, E420 for an unskilled worker, and E600 for a skilled worker; these were set in 2011 and have been adjusted according to the cost of living on an annual basis.

Impacts of national minimum wage

If not perfectly calibrated, minimum wages reduce entry-level jobs, training and lifetime income. Policymakers often propose a minimum wage as a means of raising incomes and lifting workers out of poverty. However, improvements in some young workers’ incomes, as a result of a minimum wage, come at a cost to others. Setting the minimum wage above market clearing wages would drive some people out of jobs. This would mean an increase in the number of unemployed persons in Eswatini, yet the country is currently grappling with unemployment. An increase in the minimum wage would result in increased costs and most likely to cope with the cost increase workers would have to find alternative ways of containing costs, while producing the same level of output. This is what economists call an isoquant, which means the same output by varying the amount of labour and capital in the production process. It is, therefore, imperative for the authorities setting the basic wage to be considerate of the likely impact in setting a wage that is way above market clearing.

Minimum wage considerations

The following factors have to be considered when setting up the minimum wage. First and foremost the minimum wage has to be sufficient to enable workers to survive and offer their labour without having to subsidise employers. This should not be mistaken with a minimum wage, but rather this is what economists term an efficiency wage, the bare minimum the worker needs for basic nourishment while they provide labour services. We use the term nourishment loosely, as it encompasses a vector of variables including but not limited to food, shelter, education and transport. The efficiency wage may be below the minimum wage or above the set level. It is, therefore, important to calculate the efficiency wage before setting the minimum wage. The ideal situation is for the minimum wage to equal the efficiency wage. Also, it is imperative to consider the costs of production and what the impacts of the minimum wage will be on the costs and how that will affect output, ultimately avoiding setting the wage such that it results in unemployment, more so when the country is dealing with a high unemployment problem.

Electioneering of wage regulations, setting

There is a tendency by lawmakers across the globe to vote for revisions in the minimum wage to coincide with the elections. Unions tend to have a high voter base and can swing an election in favour of the candidate who seems to favour the setting of a high minimum wage. This tends to have short term impacts and soon after the elections workers start feeling a pinch in terms of job losses as the industry adjusts; this is very true for unskilled workers who cannot be easily absorbed in other industries. I urge the nation and the Wages Council to avoid electioneering the wage setting in the current wage determination cycle. It is important to consider the long-term health of the economy and not short-term political goals.

Sectors to guard

The country is grappling with a high unemployment problem and this presents a challenge for the Wages Council to ensure that the policy changes do not lead to job losses. I urge the council to consider the agricultural sector and the textiles sector. These are sectors that easily absorb a lot of labour and the leading employers in the private sector. We must guard these sectors as they are, in the economic climate, the major contributors in combatting unemployment in the country.

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