After you have worked through this section of the learning unit, you should be able to:

  • explain and illustrate the impact of a minimum wage on a competitive labour market

Read through the following extract and consider the questions that follows:

Labour experts have criticised a World Bank report that, among other things, suggests that the introduction of a national minimum wage in South Africa would shift labour demand towards skilled labour.

The conclusions are contained in the 11th edition of the South Africa Economic Update released in April.

In it, the bank writes that the implementation of the minimum wage is to be set at R20 an hour, would also deepens the intensity of capital at the expense of unskilled labour and disproportionally affects the price of goods consumed by the poor.

While the bank said the effect of the legislation on inequality was not clear-cut given poor enforcement, its microeconomic analysis suggested "that the introduction of the national minimum wage would have a positive, but marginal, impact on reducing inequalities, depending on its negative effect on employment".

Business Day understands that local labour institutions are planning to challenge the report and other suggestions shared by the World Bank in a presentation entitled Overcoming Poverty and Inequality in South Africa:

Questions for reflection:

  1. What are the possible negative impact on employment of a national minimum wage?
  2. Why would the intensity of capital deepen and how will it influence unemployment of unskilled workers?