A NATIONAL MINIMUM WAGE FOR SOUTH AFRICA

A NATIONAL MINIMUM WAGE FOR SOUTH AFRICA Input on behalf of Organised Labour- COSATU NACTU and FEDUSA 24 June 2015 Parliamentary Portfolio Committee on Labour

It is no longer if, but when Deputy President Cyril Ramaphosa: We are involved in an historic endeavour. Not only are we called upon to give practical expression to one of the most important demands of the Freedom Charter. We are also called upon to find an approach to a national minimum wage that significantly improves the lives of workers, that reduces inequality, that lifts people out of poverty, and that contributes to economic growth and job creation.

Presentation 1. The context: a new transformation strategy 2. The challenge of working poverty and inequality 3. Minimum wages and employment 4. Wage setting mechanisms in South Africa 5. Alternative policy design- a National Minimum Wage 6. Strategies for transforming the wage structure 7. Enforcement and implementation 8. Appendix: The Nedlac negotiations

1. The context Recognition that post 1994, we have not fundamentally transformed the inherited labour market structure, and South African workers continue to experience excessive levels of income inequality, working poverty, and unemployment. Proposals aim to transform the apartheid wage structure, and introduce a coherent wage solidarity policy. While this submission is on behalf of organised labour, it is important to recognise that we are working closely with the Nedlac community constituency

Current challenges in South Africa South Africa has not had a coherent wage policy Collective bargaining is under attack. The apartheid wage structure is not fundamentally altered: majority of black workers, particularly in the private sector, continue to live in poverty. Minimum wages in sectoral determinations, and many bargaining council agreements are way below the Minimum Living Level (about R4500 to R5500 pm). There are huge, & increasing, inequalities between levels of the wage structure: top, middle & bottom; & between different sectors.

Summary of proposals The labour movement is calling for a national wage, social protection, & economic policy to address inherited inequality & poverty in the labour market. Proposes 4 pillars : 1. Adoption of a legislated national minimum wage (NMW); 2. New Collective bargaining strategies to reconfigure the wage structure, based on comprehensive centralised bargaining; 3. A campaign for comprehensive social protection; 4. This package should connect to appropriate economic strategies aimed at promoting industrialisation and decent work

The National Minimum Wage & wage solidarity 7 The National Minimum Wage, combined with restructured CB, should be consciously designed as part of a South African wage solidarity model, to progressively increase real minimum wages, and reduce gaps in overall wage levels improve pay for all those in the bottom half of the wage structure.

2. The challenge of working poverty and inequality According to the latest rebased Stats SA figures, a worker supporting four dependents in 2014 needed to earn R946 per family member, or at least R4730 per month to save his or her family from poverty

Snapshot of working poverty In 2014, according to the QLFS (Quarterly Labour Market Survey) 50% of all South African employees reportedly* earned below R3033 per month (the median); In 2014 50% of women workers earned* below R2600 per month; In 2014 50% of African workers earned* below R2800 per month; In 2013 50% of workers in the formal non-agricultural sector earned below R 4333* per month; In February 2014, according to the QES (Quarterly Employment Survey) the average wage for all workers in the formal non-agricultural sector, including high paid workers, was R14731. *Underreporting: there is a concern amongst researchers that QLFS figures may underreport real wages by at least 40%. Van der Berg found that government payroll data indicates public sector teachers gross earnings were 40 % higher than household surveys suggest, the same ratio as in the mining sector. Even if the 2014 median was inflated by 40% however, at R4246, the majority of workers still fall below the poverty line.

Median earnings- whole economy The median wage in 2014 fell by more than 10% in real terms from 2012. Source Stats SA 2014 Labour Market Dynamics

Median earnings and race Stats SA 2014

Median earnings and gender Stats SA 2014

Median earnings: formal non agricultural sectors Distribution of median monthly earnings for employees (15-64yrs) - Formal sector (non-agric) QLFS 2010 QLFS 2011 QLFS 2012 QLFS 2013 Rand Rand Rand Rand Formal sector (non-agricultural) 3 800 4 000 4 333 4 333 Mining 5 000 5 800 6 000 6 000 Manufacturing 3 466 3 500 3 510 3 809 Utilities 6 000 6 000 6 000 8 900 Construction 2 600 2 816 2 816 3 000 Trade 2 730 3 000 3 033 3 033 Transport 4 500 4 500 4 750 5 000 Finance 3 900 4 500 4 333 4 500 Services 6 225 6 500 7 000 6 647

Average earnings: formal non agricultural sectors Source: QES, Stats SA Including bonuses and overtime Year and month Annual Average monthly Quarterly changes (%) earnings (Rand) changes (%) q/q y/y 2009 Feb 9 614 0.9 9.9 May 9 724 1.1 6.4 Aug 10 591 8.9 11.3 Nov 11 020 4.1 15.7 2010 Feb 11 207 1.7 16.6 May 11 570 3.2 19.0 Aug 11 808 2.1 11.5 Nov 12 274 3.9 11.4 2011 Feb 12 262-0.1 9.4 May 12 123-1.1 4.8 Aug 12 923 6.6 9.4 Nov 13 214 2.3 7.7 2012 Feb 13 143-0.5 7.2 May 13 578 3.3 12.0 Aug 13 980 3.0 8.2 Nov 14 291 2.2 8.2 2013 Feb 13 908-2.7 5.8 May 14 506 4.3 6.8 Aug 14 795 2.0 5.8 Nov* 14 937 1.0 4.5 2014 Feb 14 731-1.4 5.9

Wage inequality Why is there such a huge gap between the average wage in the formal non-agricultural sector of R14731(Feb 2014), and the median wage in that sector of R4333 (2013)? Reflects massive inequalities in wage structure. Internationally the minimum wage is 40% of the national average wage. In South Africa it is less than 20%, in current prices (graph below contains figures for 2006).

Minimum: average wage ratio extremely low 16 OECD, 2010. Tackling Inequalities in Brazil, China, India and South Africa. Paris: Organisation for Economic Co-operation and Development.

The wage gap is growing The wage gap between the top and the bottom is increasing at an alarming rate: in 2010 the top 5% earned around 30 times more than the bottom 5% employees. By 2014, this had increased to almost 50 times. In the space of four years! Table 4.12 (Stats SA 2014 Labour Market Dynamics)

Wage income key source of inequality Leibbrandt et al (2012): the labour market is the driving force behind aggregate inequality in the country ; between 1993 and 2008 wage income (including selfemployment income) accounted for 85% to 90% of inequality. Research by DPRU: 2/3 of workers covered by Sectoral Determinations in 2007 were living in poverty. Labour has received a decreasing portion of national income over the last 20 years, particularly low paid workers; and renumeration has lagged behind productivity- see below.

Labour productivity and real wages 19. Burger, P., 2015. Wages, Productivity and Labour s Declining Income Share in Post-Apartheid South Africa. South African Journal of Economics, 83 (2), 159 173.

20 3. Minimum Wages and Employment: Evidence General: evidence is mounting that moderate minimum wages can do more good than harm The Economist, Nov 24 2012 Minimum wages significantly improve the lives of low income workers and their families without the adverse effects that critics have claimed 650 leading US economists The UK Low Pay Commission, responsible for setting national minimum wages, stated that their research could find no evidence that minimum wages caused damage to the economy or jobs. Latin American experience refutes the alleged trade off between MW s and employment in practice. Brazil saw the creation of over 17 million jobs coincide with large real increases in minimum wages (see international appendix). Uruguay increased the NMW from US$100 in 2003 to $500 in 2014. Yet unemployment in Uruguay is now at historically low levels. (ILO 2014 CAS report)

Local studies 21 UCT s DPRU found, in a study conducted for the Department of Labour in 2010, that between 2001-2007, after the introduction of higher minimum wages through Sectoral Determinations, net employment in the affected sectors actually increased by over 650 000 workers, from 3,45 million to 4,1 million, despite lost farm worker jobs. Bhorat et al. (2013): no negative impact on retail and wholesale, domestic workers, forestry, taxi workers, and private security Bhorat et al. (2013): negative impact in agriculture, but latest statistics seem to contradict this see below

Low wages don t create jobs 22 Conversely, low and declining wages don t create employment: real wages of low-skilled workers have fallen since the 1990 s, but jobs for the lowskilled have shrunk by nearly a million. Yet 2.5 million jobs have been created for higher paid higher-skilled workers over the same period despite large increases in real wages.

Other factors are important in determining employment levels There is no mechanical relationship between the level of employment and the level of wages. Employment performance is explained by various economic factors. Sectoral conditions, industrial strategy, trade dynamics etc, play a key role in determining how any sector performs. Therefore wage policy must be combined with appropriate macro & sectoral policies to have the desired employment impact Agriculture: State support for farms has declined to very low levels with the value of producer support as a share of the value of total gross farm receipts being about 3% in 2008 2010, well below the OECD average of 20%*. Clothes and textiles: Turkey s clothing and textile sector consistently outcompetes South Africa s despite Turkish wages being 24% to 41% higher in 2011*. *Source: G Isaacs NMW Research Initiative

The myth that rising minimum wages must lead to job loss is also not true in agriculture Agricultural Employment 2012-2015 Thousands 900 800 700 600 500 400 300 200 100 0 696 740 2012 Strikes & 50% rise in min wage April 2013 709 742 891 2012 2013 Q1 2014 Q4 2014 Q1 2015 Increase in agricultural employment 2012 15: Thousands: 195 Percent: 22 Source: Stats SA, Labour Dynamics 2014 & QLFS Q1, 2015

4. Wage setting mechanisms in SA 25 Bargaining Councils (BC s) only cover about 2,4 million workers; and Sectoral Determinations (SD s) 3.5 million (out of 10,8 million formal sector workers). Multiple, low, minimum wages: Some set through Collective Bargaining, including 47 Bargaining Councils (BC s); some by government through 11 sectoral determinations (SD s); and some through agreements at company level. There are 124 minimum wage schedules in SA. No national approach. Fragmentation, and technocratic processes eg in Employment Conditions Commission, which sets statutory MW s, disadvantages workers, and assists powerful interests. Many workers covered by MW s getting stuck at level of very low minima & remain in poverty. Low levels of enforcement. Very low: compared to guide of R4000 in 2011 as Minimum Living Level (MLL), in 2011 average minimum for SD s R2118;& R2725 for BC s. Only public sector, most mining, & some manufacturing paid more than R4000. Huge variation in MWs between and within sectors. No coherent wage policy governing MWs

Proliferation of sectoral minimum wages Minimum Wage Schedules Across Select African Countries Source: DPRU, 2015 SA has the highest number of minimum wage schedules compared to other African countries This has implications for compliance and enforcement 26

Collective Bargaining Coverage. How salary increment was negotiated Q4, 2014 Source: QLFS, Q4, 2014 17

Sectoral Determination Minimum wages Source: Jane Barrett, Cosatu, 2015 Sector Min ph Min pd Min pm Increase date (9 hour day) 1. Domestic metro (above 27 hours pw) 10.95 98.55 2065.47 1 Dec 2015 Domestic non metro (above 27 hours pw) 9.30 83.70 1812.57 2. Security Officer Grades D& E Area 1 15.25-3172.00 1 Sept 2015 Security Officer Grades D& E Area 2 13.95-2901.00 Security Officer Grades D& E Area 3 12.68-2637.00 3. Forestry 13.37 120.32 2606.78 1 March 2016 4. Farm 13.37 120.32 2606.78 1 March 2016 5. Contract Cleaning Area A metros ex KZN 16.98 152.82 3308.55 1 Jan 2016 Contract Cleaning Area B all other ex KZN 15.47 139.23 3014.33 6. Hospitality 10 or < workers 13.34 120.06 2601.88 1 July 2015 Hospitality > 10 workers 14.87 133.83 2900.08 7.Taxi drivers and admin workers 13.68 123.12 2847.01 1 July 2015 Taxi rank marshals 10.94 98.46 2275.81 8.Wholesale & Retail shop ass. Area A 16.67 750.05 3249.98 1 Feb 2016 Wholesale & Retail shop ass. Area B 14.09 634.32 2748.51 Wholesale & Retail sales person Area A 21.04 946.70 4102.04 Wholesale & Retail sales person Area B 17.92 806.15 3493.08 9.EPWP (Ministerial Determination) 9.34 75.10 1625.00 1 Nov 2015 20

29 Do workers receiving SD minima escape poverty? Source: Gilad Isaacs Wits NMW Research Initiative

International experience 30 See separate document to be circulated to members later. It is important to briefly look at the Brazilian experience (information taken from expert presentation to international NMW workshop on the 20 th June 2015):

Latin America: average real MW 200,0 180,0 160,0 4.6 % real increase per annum 140,0 120,0 100,0 80,0 3.4 % increase per annum Simple Weighted 60,0 40,0 20,0 0,0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Brazil: real Minimum Wage increases 250,0 1995-2013: 4.8 % real increase per annum 200,0 150,0 100,0 2003-2013: 5.6 % real increase per annum 50,0 0,0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Brazil: recent evolution In U$ PPP Lula 127 134 145 100 111 113 124 141 145 149 176 175 190 195 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 The conversion was made at the rate of purchasing power parity (PPP), at 2005 rates and then

Level of Brazilian NMW Note on current level of Brazilian NMW in South African Rand: NMW in 2015 is 788 Brazil R$ At the beginning of 2015 this would have been equivalent to about R3800 But because of the depreciation of currency now around R3110

Brazil: Problems predicted by the critics 1. Increase in inflation rates 2. Rise in unemployment 3. Increase in the fiscal deficit (on account the social security system) 4. Increase of labor informality 5. Decline in unionization

The results (1) The inflation rate fell since 2002,& under control Problems expected by the critics

The results (2): unemployment fell 16 14 12 Men Women 10 % 8 6 4 2 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

The results (3): The fiscal deficit didn t rise Net public sector debt (GDP %)

The results (4) Formality in the labor market has increased 60% 55% 50% 45% 40% 35% 30% 2002 2003 2004 2005 2006 2007 2008 2009 2011 2012 2013

The results (5): Unionization increased for low wage workers 40 35 2005 2011 30 25 % 20 15 10 5 0 Over 10 Over 5 to 10 Over 3 to 5 Over 1 to 3 Up to 1 (Units of M.W.)

The results (6): Favorable annual salary bargains compared to inflation Above Equal Below 33 37 47 58 19 26 12 16 3 4 11 8 11 9 4 6 4 1 8 8 12 12 9 7 15 52 20 43 28 23 55 72 86 88 77 80 88 87 95 85 26 19

The results (7): Reducing inequality Gini Index

How to explain this success? Studies of the IMF, the World Bank and other Brazilian research centers point that about 60% of the reduction in inequality was due to the minimum wage rise policy. But that does not mean that such policy can achieve these results in isolation. A set of other factors were crucial too.

Concurrent factors: Institutional The Brazilian Labour Justice and the system of punishments and sentences for non-compliance; The link between the minimum wage and the social security system. Tax relief for micro and small entrepreneurs who formalize their employees - the same for domestic employers.

Concurrent factors: Economical The monetary stabilization; The commodities boom (current account surpluses); The fall in the price of manufactured goods; The recovery of the investment levels; Rise of credit Rise of public investments Employment growth (moving closer to the full employment); Average rates of GDP growth of 3.5% for several years

Concurrent factors: Political The discomfort produced by neoliberal policies of the 90s; The national government under the direction of a strong Labour Party; The support of the social movements and the trade unions; The historical legitimacy of Lula as a workers leader and a recognized negotiator.

Some lessons from the ILO workshop 47 The Deputy President convened a workshop of international experts on 20 June 2015, led by the ILO. Inputs suggest that: The NMW has been successful virtually everywhere it has been introduced Complex systems with multiple wage levels are difficult to implement and enforce In most cases the NMW has been introduced in the face of protests from employers and conservative economists. This should not prevent progress in taking the NMW forward. Dire predictions about job losses, and other dangers of the NMW, have failed to materialise Despite fears about extending the NMW to less developed regions within a country, the most effective systems have been those applied throughout a country Careful design of the system is important

Some lessons from the ILO workshop II 48 There must be regular, real increases in the NMW, and the principle of wage solidarity (highest increases for the lowest paid) should be followed There needs to be a conscious programme to use the NMW to ensure that working families are removed from poverty The NMW is a wage floor, and can t substitute for living wage struggles, and collective bargaining in the different sectors. However it does provide a springboard for these. Capacity to implement and enforce, and political will to do so, is critical. The NMW has played an important role in the combating of poverty and inequality, but needs to be combined with a package of other measures to have greatest effect.

5. Policy Design Questions 49 Some of the questions of policy design include: How would the NMW relate to other wage setting mechanisms such as collective bargaining and sectoral determinations? Should the NMW be implemented universally or should there be a transition in certain sectors ie a phasing in? Should it include all sectors and employers or allow for some exemptions and exceptions? Should it be set hourly, daily, weekly, monthly? How and by what amount should the NMW be increased, how often, and what process should be followed? Should businesses be offered incentives to co-operate in implementation of the NMW? What institutions and capacity need be put in place to oversee implementation of the NMW and effective enforcement and monitoring? Many of these issues are still being discussed at Nedlac.

Emerging agreements on the NMW 50 Despite many disagreements and difficulties, we are moving towards agreement on elements of the NMW architecture, and have now agreed on the principle of a National Minimum Wage, including the following, as outlined by the Deputy President on Saturday 20 th June: The national minimum wage shall be the legal floor for a defined period of time, guaranteed by law, below which no employee may be paid in South Africa. A national minimum wage will apply to all employees, both in the public and private sectors, unless provided for otherwise by an exclusion, phase-in or phase-out in an upfront agreement.

Emerging agreements on the NMW II 51 Collective agreements, including bargaining council agreements, sectoral determinations and contracts of employment, may not make provision for a wage that is lower than the national minimum wage, but may only vary wages upwards. Depending on the minimum wage level, however, certain exceptions may be needed. Nevertheless, it is generally agreed that comprehensive coverage is desirable and that a patchwork approach should be avoided The body that will be responsible for determining a national minimum wage will be a body similar to the Employment Conditions Commission, which currently recommends minimum wages and conditions of employment on a sector basis to the Minister of Labour.

The elephant in the room: the level of the NMW 52 The most difficult issue on which we need to reach agreement is the question of the level at which the NMW will be set, and the medium term targets. The critical test in this regard will be whether the NMW which is introduced entrenches the existing wage structure; or whether it is deliberately designed as part of an overall wage policy, to transform the inequitable character of the current wage structure. Would it significantly increase the income of the largest feasible numbers of the current working poor? Labour has argued that in developing this wage policy, two important benchmarks which need to be considered are the ratio of the NMW to the national average wage; and some type of generally accepted minimum living level. The international benchmark used by the ILO and OECD for a NMW, is a ratio of 40-50% of the average national wage. The international average for the NMW in both developed and developing countries is around 40% of the average or mean wage. According to a 2010 OECD report, South Africa, at less than 25%, is considerably below the OECD average.

Indexing the NMW to 2 benchmarks 53 Indexing the NMW, at least in the medium term, to 40% - 50% of average wage gives us a sense of what this target would mean: Average earnings: R14,731 in Feb, 2014 40% of average wage: R5,892.40 Cost of living / needs based approaches: The most basic minimum living level is the Upper bound poverty line calculated by Stats SA: R941.63 pp in 2014 prices. This is a bit lower than other lines. If we calculate this level for a household of five, given that low paid workers tend to have more dependents, we arrive at a figure of R4708.15 for 2014.

Understanding the minimum living level 54 A minimum living level measure is particularly important where low wage earners are single breadwinners in households, and where adult unemployed lack income support- in that situation a minimum wage needs to be able to support a family. It must include the cost of basic necessities, and be supplemented by the social wage, to ensure public provision of education, health care etc. There should be a needs-based approach to determining minimum living levels, driven partly by the assertion by workers themselves as to what their basic needs are, combined with objective scientific surveys. The process of determining the MLL should be led by a competent department, (such as DSD or EDD) which is able to look at wage policy as a component of economic and social development.

Policy options: three scenarios 55 Labour has argued in Nedlac that there are essentially 3 scenarios which can be adopted in relation to the level of the NMW: a minimalist, maximalist, or medium term transformation strategy. The minimalist or lowest common denominator approach, which would tend to have support from business, is to propose that the NMW is set around the lowest level of the current wage structure. This of course would have no impact, and it is regarded internationally as being of no value to set a NMW too low. We have therefore rejected it. The maximalist approach, which would have support of many workers, would be to set the NMW immediately at a level which would meet the criteria above. The danger of this maximalist approach is firstly that it would deadlock negotiations, as it has no real prospect of being agreed to, and secondly that it would not be feasible to make such a massive jump from the current low wage structure, no matter how much we may desire it. In practice if the NMW was set at say R6000-7000, this would need almost a tripling of the wages of millions of low paid workers.

A medium term strategy 56 Therefore labour has argued in Nedlac for a third scenario: a medium term strategy, or road map, for transforming the wage structure in a managed way- this would, starting with a level of the NMW which significantly improves the income of low paid workers, progressively increase the value of the NMW in line with achieving the average wage, and MLL targets within a reasonable time. This would be a bold but managed approach, in line with the Latin American experience, of systematically increasing the value of the NMW at a significantly faster rate than other wages in the economy. It would also deliberately aim to transform the wage structure, in combination with other strategies to reduce wage differentials. We are seeking advice from progressive economists on how best to structure this package.

Process and timeframes 57 We have agree in Nedlac that our deliberations will be informed by evidence based research, and we continue to examine the best international and local evidence on how to structure our NMW. However, this will not be an open ended process, as international experience suggests that research can only take us so far. In the end we have to take some bold decisions which will move us forward. We therefore, together with our allies in the community constituency, are insistent that we need to move with the necessary urgency to deliver on the commitment to our people. We therefore welcome the commitment by the Deputy President to conclude the negotiations with the necessary speed, and by the end of this year at the latest.

58 6. Strategies for Transforming the Wage Structure

2014 ANC Manifesto aims to transform the wage structure Labours proposals on the labour market have partly been incorporated into the ruling party s Manifesto: 1. Introduction of a legislated national minimum wage; 2. Promoting collective bargaining in all sectors of the economy. Use of bargaining councils to promote greater wage equity, including through using state incentives 3. Legally require employers to report progress on measures to reduce extreme income differentials 4. Strict regulation to combat atypical employment practices. Unity and mobilisation of labour movement, and broader civil society, around these commitments is important to ensure their realisation.

The National Minimum Wage, collective bargaining, & wage solidarity Setting of National Minimum Wage, & other forms of minimum wage setting (eg BC s), should be required by government, to achieve certain targets, in terms of reducing wage inequality (see ANC Manifesto), & meeting nationally set Minimum Living Levels. Achievement of sectoral and company plans to promote wage solidarity should be a condition for access to certain state incentives. Eg Greater London Council requires payment of living wage by companies to be eligible for procurement by the GLC. Employment Equity Act S27 should be strengthened, requiring companies to reduce income differentials.

NMW and collective bargaining Complementary role: The minimum wage sets a floor, and assists in compressing the wage structure. Collective bargaining improves on this wage floor in different sectors, and negotiates a wide range of benefits and improvements for workers.

NMW and collective bargaining The ILO for this reason supports a unified NMW, and warns against proliferation of government fixed sectoral minimum wages. There is place for the two key legs of the system of wage determination- CB and NMW. Statutory minimum wages alone can't address needs of different layers, CB by itself cannot deal with the problem of the most vulnerable and low-paid work. Proposal is to have one NMW complementing a system of compulsory centralised bargaining, or at the least promotion of comprehensive CB. Would combat problem of fragmented statutory minimum wages, and undermining of collective bargaining. Challenge: to ensure sufficient union representivity in the most vulnerable sectors, to allow for effective collective bargaining.

Transforming the Wage Structure: The PPC case 63 The PPC experiment showed the dramatic difference reconfiguration of our highly unequal wage structure could make: PPC CEO Khetso Gordhan took a large pay cut (as did 60 top executives) to reduce the 1:120 ratio between his salary and those of the lowest-paid. 1 000 PPC workers at the lowest pay-grades got an increase of about R10 000 per year. This reduced the ratio to 1:40. Imagine if we generalised this approach to the economy as a wholeprivate and public sector- what a powerful impact this could make in transforming our society.

Design & implementation of a new Wage Policy Matters to be considered include: Development of a national wage policy which transforms the whole wage & income structure Development of a National Minimum Living Level Legislative provisions to give effect to the NMW & comprehensive collective bargaining. Penalties to give real teeth to the NMW Ensuring all instruments of the state require adherence to this national wage policy. Capacity in Department of Labour to ensure compliance

7. Compliance and Enforcement Minimum wage regulations in SA are currently enforced by labour inspectors The labour inspectors conduct workplace inspections and serve employers with penalties for violations based on a welldeveloped procedure These inspections are governed by the Inspection and Enforcement Services (IES) arm of the DoL Inspectors are based at 126 labour centres around the country There are currently 1, 318 inspectors The IES units try to ensure compliance through a combination of individual employer visits, advertising, advocacy sessions with workers and training programmes 27

NMW and enforcement 66 A National Minimum Wage will : Facilitate campaigns for a national wage floor as a weapon to fight working poverty; Because of its simplicity and clarity, every worker would be made aware of their rights; Current huge problem of non-enforcement would be countered. NMW easier to enforce. Help to lay the basis for more comprehensive improvements in wages & conditions through CB.

Empirical data 67 Bhorat Kanbur and Mayet: Development Policy Research Unit,2011* Based on Labour Force Survey: 2007 It was established that there was a disturbingly high level of non-compliance: 44% receive wages lower than the sectoral minima; An average of 35% shortfall across the various determinations targeted with the worst violations being in security sector. *Minimum Wage Violation in South Africa UCT

68 Beefing up capacity & the role of trade unions The Inspectorate chiefly works on a reactive basis. Galvanisation of an inspection emanating from complaints. Trade unions need to be given a more active role To be given airtime to permitted blow the proverbial whistle by virtue of recognition as a complaining party or agent acting on behalf of workers; Trade unions should be given recognition by the Inspectorate of the DoL in regard to access to complaints filed by their members; Introduction of Compliance Workplace Monitoring Committees comprising shops stewards and Managers.

Additional compliance measure 69 We propose the Inspectorate of the DoL to: Report annual statistics on non-compliance by employers; Publication on a year-by-year list of non-compliant employers on a name-and-shame list; Set up a dedicated Hotline for reporting of errant employers; Progressive sensitisation of employers; Appointment of additional Labour Inspectors to enable the pro-active monitoring of employers

NMW part of a broader strategy 70 Would need to be combined with a far more effective programme of enforcement, as in Brazil, which is also complemented with other strategies, eg to fight against atypical work, informalisation and non-registration of employers.

Rates of compliance in developing countries Source: Belser et al ILO 2013

Appendix: Nedlac negotiations Extract from report by Nedlac Acting Executive Director Mahandra Naidoo President Zuma, in his State of the Nation Address of 17 June 2014, announced that: - Deputy President Cyril Ramaphosa would convene a social partner dialogue, under the ambit of Nedlac, on wage inequality and labour relations - The Nedlac engagement would specifically focus on: the possibility of introducing a national minimum wage in order to reduce income inequality the state of the labour relations environment At the Nedlac Summit of 5 September 2014, the Deputy President announced the convening of a Labour Relations Indaba to initiate the Nedlac engagement process 2

Nedlac Engagement Process - Overview Following the Summit, the Nedlac engagement process has comprised the following key components: Convening of the Nedlac Labour Relations Indaba Signing of the Nedlac Ekurhuleni Declaration Key components Establishment of the Committee of Principals Convening of the technical task teams Engagement by the technical task teams 4

Convening of the technical task teams Two technical task teams have been established to directly undertake engagements: - Wage Inequality Technical Task Team - Labour Relations Technical Task Team The task teams comprise representatives of each of the social partners The work of each of the task teams is guided by a detailed terms of reference The terms of reference of the Wage Inequality Technical Task Team requires it to engage on the following: 8

Wage Inequality Task Team Terms of Reference - The modalities of introducing a national minimum wage in South Africa, including consideration of: Relevant international experience in the introduction of a national minimum wage Maximising the beneficial impact of a national minimum wage in the context of poverty, inequality and unemployment and to understand the impact it may have in order to manage potential risks The existing legal and institutional arrangement for minimum wage setting (BCEA, bargaining councils, other bargaining fora); what new legislative, and other institutional arrangements would be required to introduce a national minimum wage; and what impact the introduction of a national minimum wage will have on existing sectoral determinations and collective wage agreements 9

Task Team Terms of Reference The architecture of a national minimum wage including possible exclusions, while recognising the need for a national minimum wage to be as comprehensive as possible Ensuring that the impact of introducing a national minimum wage is not undermined, or delayed unnecessarily and to consider whether any phase-in processes would be appropriate The body that will be responsible for determining a national minimum wage The mechanism for setting and determining increases to the national minimum wage Enforcement of the national minimum wage and measures to ensure compliance and monitor the impact Innovative measures to promote employer cooperation in the implementation of a national minimum wage 10

Task Team Terms of Reference - Measures to reduce pay differentials, including between the highest and lowest paid, while maximising job creation efforts - Measures to achieve the elimination of poverty and inequality - Support the urgent finalisation of a policy on a comprehensive social security system 11

Engagement by the Wage Inequality Technical Task Team The task team is currently focusing on: Finalising the definition of the national minimum wage Based on evidence, developing the social and economic determinants of the national minimum wage in line with combatting inequality; and promoting economic growth, poverty alleviation and employment objectives Considering whether the national minimum wage, in its application, will provide for sector-specific or other exclusions, phase-ins, phase-outs or exemptions, and in which areas, depending on the level Considering the appropriate legal and institutional arrangements, and the body and/or mechanism that would be responsible for determining and reviewing the national minimum wage, including the regularity of reviews, and the capacity and structure of the Employment Conditions Commission (ECC) to determine the national minimum wage Determining how to optimise compliance and enforcement efforts 13