The Effects of the National Minimum Wage as a Labor Market Mechanism for Reducing Income Inequality in South Africa

Abstract

South Africa has stood among the most unequal countries in the world in terms of income differentials between the highest-paid and the lowest-paid workers for the past four decades. Local and international reports on inequality indicate that in the post-apartheid era, inequality has been sustained or increased. The post-apartheid state adopted the National Minimum Wage (NMW) in 2018 as part of its extensive social policy initiative to help address the challenge of income inequality. While there are enough data that attribute the reduction of income inequality in some developed as well as developing countries to statutory minimum wages, it is not clear to what extent the NMW in South Africa can achieve the goal of reducing income inequality. This study assesses whether the NMW is an effective tool for addressing income inequality in the labor market. A qualitative approach was adopted and interviewed experts in labor market policies in South Africa and supplemented by an analysis of some key documents related to this study. Tesch’s 1990 data analysis model was utilized to analyse data according to the objectives of the study. The findings of this study reveals that the NMW if well implemented, is an effective mechanism for reducing income inequality in the labor market. However, in the context of South Africa, poor implementation and setting at a low level has weakened the effectiveness of the NMW in achieving its objective of reducing income inequality. This study argues that the current rate of the NMW is influenced by the power and dominance of capital and operates to achieve the interests of capitalists. This means that the NMW could not achieve the intended objective of reducing income inequality as envisioned by the labor movements and activists that pioneered the NMW campaign. This study recommends adopting an integrated social policy approach in the implementation of the NMW to enable its beneficiaries to leverage other social policy initiatives. This approach entails allowing beneficiaries of the NMW to also benefit from other social policy initiatives in their communities. This approach aims to inspire a rethinking among the political, economic, and labor activists towards an effective approach that would enable the NMW to reduce income inequality in the labor market.