Minimum Wage estimated to have destroyed 430,000 jobs – IRR

IRR Legal has urged the National Minimum Wage (NMW) Commission to reverse its latest recommendation to increase the minimum wage by inflation plus 1.5% in light of the estimated 430,000 jobs destroyed by the NMW over the past five years.

In the report accompanying its latest recommendation, the NMW Commission does not bother to note how many people are estimated to have lost employment opportunities, including those who had jobs but lost them as well as work seekers blocked from finding jobs, due to the minimum wage.

The NMW Commission does acknowledge that the economic team of experts it relies on, the Development Policy Research Unit (DPRU), found “statistically significant” effects on employment that have been “negative”. However, without mentioning, or considering, the actual estimated number of people rendered jobless by the minimum wage, the NMW Commission vaguely describes the impact as “small”.

IRR Legal corresponded directly with the DPRU in order to ascertain what the best estimate is for joblessness created by the NMW in 2024. The estimated number of jobs destroyed is 227,800, which is 3.4% of the 6.7 million “low-wage” workers who earn roughly up to R7,500 a month.

Destroying roughly 230,000 jobs in this group is particularly damaging to those rendered workless, and to their dependants, because low-wage workers are the least likely to have meaningful savings to draw on for daily consumption while they look for work.

However, if the horizon of analysis is extended back to 2019 the figures become more concerning. It is important to note that the range of uncertainty expands on the longer time horizon analysis, including uncertainty about the total number of low-wage workers.

According to the DPRU, 4.8% to 8.1% of low-wage workers have been rendered jobless by the NMW since 2019, and that is not even including peak periods during the government-imposed Covid lockdown. Assuming the population of low-wage workers has had an approximate mean of 6.7 million over that period, that amounts to between 321,600 and 542,700 jobs destroyed by the NMW.

In other words, the best available estimate for the total number of jobs destroyed by the NMW to date is roughly 430,000 among low-wage workers.

Furthermore, the crisis of non-compliance with an impossibly high NMW for many has expanded, according to the DPRU. An estimated 5,377,049 people earn below the NMW. Almost all of those workers are non-compliant with the NMW law, except for some government workers, as the state is the sole employer permitted to pay people less than the NMW without requiring exemption.

The DPRU estimates that while 34.8% of all workers were in the non-compliant range in 2019, that has since climbed up to 39.1%.

However, it is estimated that cutting the NMW by 25% would bring all, or most, of the destroyed jobs back. Since reducing unemployment is the number one priority, this is what the NMW Commission ought to recommend.

The NMW Commission’s survey of submissions indicated that two thirds of respondents (67%) were opposed to increasing the minimum wage, while only 22% favoured such an increase.

In its submission, IRR Legal urged the NMW Commission to heed common sense, and the dismal record of mass job destruction, and make things right by reducing the NMW by 25% to bring back up to half a million jobs.

Media contact: Gabriel Crouse, IRR Legal Executive Director Tel: 082 510 0360 Email: gabriel@irrlegal.org.za

Media enquiries: Michael Morris Tel: 066 302 1968 Email: michael@irr.org.za