I recently wrote a piece on the proposed National Minimum Wage (NMW) in South Africa. Although mention of the wage floor was limited in both this year’s State of the Nation Address and the Budget Speech, it is no less a hot topic. In my research I looked at patterns of inequality, unemployment and wage policies in South Africa and other developing nations.
After going through the evidence, I leaned towards arguments that supported the institution of a minimum wage – however, I conceded that such a policy would only be a palliative intervention. There was a particular issue that piqued my interest, but was unfortunately beyond the scope of my analysis, which was human capital development. The unlettered man’s interpretation of Marx’s Das Kapital would take away that amongst all the forms of capital available, in land/nature, finance and labour amongst others, labour or human capital was the one form most vulnerable to technological and economic flux. Talk of redistributive justice and redress of ownership patterns that came about from the colonial and Apartheid regimes often focus on physical capital, I would like to argue that perhaps we should spend more time thinking about human capital and unlocking returns on this first form of capital every person owns.

Before I delve deeper into the subject I’d like to describe the current state of the South African economy specifically focussing on issues of inequality, unemployment and poverty. Here are a few takeaways:

  • The story of income inequality is not so simple. While South Africa exhibits one of the highest Gini coefficients, the figure quoted is often before taxation and social welfare transfers. The post-taxation and social transfer coefficient is well below 50%.
  • Too few people work. While taxation and welfare have some effect on inequality, they don’t have a significant effect on distributional changes, simply because wealthier people are often better at protecting their wealth than lower income individuals. Work income has a greater impact on inequality, but with an unemployment rate of between 25%-35% depending on the definition mean that many are dependent on government support.
  • Human Capital Deterioration. The South African economy is the most industrialised on the African continent and is progressively moving away from primary industries. The mining industry is passed its peak, even in cases like platinum where the country may boast some of the world’s largest reserves it is mechanising. Where human capital should be accumulated in order for labour to acquire the skills necessary to function in a rapidly industrialising nation, it has often lagged or even gone the opposite direction. This has created a significant skills mismatch in the labour market.
  • Human Capital Accumulation is critical to igniting and sustaining growth.  The unemployed are often unskilled and inexperienced. Returns on human capital are difficult to measure, companies are reluctant invest in comprehensive skills programmes as they may not be able to recognise the full benefit of the investment. It would seem that government has to step in and provide support to this regard. Even if more skilled labour may be more expensive, it is often the case that they are much more efficient.

I concluded that any minimum wage intervention would be palliative, and that it has to be coupled with a comprehensive retraining programme. This is where we begin. I would would like to dig a bit deeper into the idea of developing people as a source of capital.