Basic income grant more morally just and effective than minimum wage

The debate around the implementation of a national minimum wage has heated up in recent weeks. The government originally planned to begin enforcing a minimum wage of R20 per hour – equal to R3,500 per month for a full-time employee – on May 1, but a series of delays meant the National Assembly only adopted the National Minimum Wage Bill on May 29. Despite the delay, with the National Council of Provinces set to concur, SA is expected to have a nationwide minimum wage within the next few months.

In response to the government’s plans for a uniformly enforced minimum wage that would, conveniently, only exclude the government’s own Expanded Public Works Programme and certain categories of farm and domestic workers, the DA has argued for a different approach.

The official opposition’s proposal calls for individual workers to be allowed to opt out and on their own volition accept salaries lower than the minimum wage, and for a more nuanced approach where different economic sectors are subject to different minimums.

The DA has rightly criticised the bill based on the National Treasury’s own calculations, which show that 750,000 out of the country’s 11-million formally employed workers are likely to lose their jobs as a result of the ANC’s version of the minimum wage.

In response to the DA’s criticism, President Cyril Ramaphosa essentially argued in Parliament that it was worth sacrificing those 750,000 jobs because an inflexible and uniform minimum would increase the incomes of 6.6-million other workers fortunate enough to keep their jobs.

What was lacking from Ramaphosa’s response was an acknowledgement that SA faces an unemployment problem on a scale unlike any other country that has previously adopted a minimum wage. In societies with "normal" unemployment rates that consistently hover between 3% and 12%, the strict implementation of a (sectoral) minimum wage can indeed be a progressive move that delivers tangible benefits to most citizens.

If SA had an unemployment rate of, say, 10% the loss of 750,000 jobs could perhaps have been absorbed without causing significant damage. But the reality is that if we include discouraged work seekers, SA has an unemployment rate of 36%, one of the highest in the world.

Once we recognise the extent of the country’s unemployment crisis, the question that automatically arises is whether a conventional minimum wage is the right policy tool to tackle income poverty in SA’s highly unconventional context. The reality is that a staggering 8.5-million working-age South Africans are not economically active, which means they will not directly benefit from any minimum wage (although some scraps may spill over to them).

The implementation of the ANC’s version of the minimum wage will add at least another 750,000 to this pool of hopelessness, bringing the total of economically nonactive adults to 9.25-million.

In comparison, the 6.6-million people who are fortunate enough to be employed and benefit from the bill constitute a minority that in the South African context of mass unemployment sadly represents something of a "labour elite". The real question the ANC needs to answer is whether it is fair and just to adopt a bill that would directly benefit a minority of 6.6-million at the expense of the soon-to-be 9.25-million noneconomically active people who will now find it even harder to gain a foothold on the formal employment ladder.

Instead of fixating on a minimum wage, the vastness of SA’s unemployment crisis demands that we think outside the box.

Even if the government found a way to instantly fix the education crisis and improve SA’s economic competitiveness, the truth is that an entire generation of citizens who have already been doomed by our dysfunctional school system after 1994 will remain confined to lives in which finding a formal job is nearly impossibly difficult.

Given that our abnormally high unemployment rate is unlikely to decline any time soon, the economic resources consumed by the national minimum wage would have been better spent on a basic income grant, sometimes also called a universal basic income.

Unlike the minimum wage, a basic income could benefit all citizens living in poverty, regardless of their employment status. Unlike existing social grants, a basic income would be relatively easy to administer: the government on a monthly basis simply deposits an amount of perhaps R647 (the current lower-bound poverty line) into the bank or South African Social Security Agency account of every adult citizen, without the need for an expensive and time-consuming means test. To lessen the costs and ensure the basic income only benefits those who really need it, the government could then easily recover the monthly R647 payments from the wealthy through the income tax system.

Every South African could receive a monthly basic income, but anyone who pays more than a certain amount of annual income tax would then pay the grant back at the end of the year, which ensures that the basic income — unlike the minimum wage — would benefit the people who need it most. Surely that is the point: to channel benefits directly to those who are most in need, people who aren’t lucky enough to be part of the "labour elite" by having a steady formal job.

Not only would a basic income be more morally just than a strict minimum wage in the context of SA’s unemployment crisis, but it could also contribute to the creation of more entrepreneurs who are not dependent on wage income. Evidence from pilot projects conducted in countries as diverse as Namibia, India and Canada shows that poor people who received a monthly basic income often used some of the money to invest in microenterprises.

In one example, a rural Namibian beneficiary used $5 from her first grant payment to buy two chickens. After only 12 months she owned 40 chickens — and sold the healthiest ones for as much as $30. After deducting the cost of feed (partly financed through her monthly basic income), her business was valued at $1,000.

Compared to an inflexible minimum wage that would only benefit a minority of workers at the expense of the majority of economically inactive citizens, a basic income, perhaps more appropriately called an "empowerment grant", would be a more just and cost-effective solution that directly empowers the most desperate South Africans.

• Dr Schreiber is a senior research specialist at Princeton University and author of Coalition Country: SA after the ANC (Tafelberg).