Sectoral Minimum Wages in South Africa: Disemployment by Firm Size and Trade Exposure

Sectoral Minimum Wages in South Africa: Disemployment by Firm Size and Trade Exposure

Abstract

This paper measures the impact of South African minimum wages on small and large firm employment in a sector that is exposed to international competition (agriculture) and one that is not (retail). Small farm employment is most vulnerable to minimum wage legislation. In contrast, large farm employment was shielded from employment losses. While this shift represents a short-run response to minimum wages, it may intensify the long-run movement towards fewer, larger, and more capital-intensive farms. Retail employment experienced no changes in employment, regardless of firm size. These results are in line with the idea that firms exposed to international markets cannot easily increase prices when their employees’ wages increase while non-tradable sectors can more readily shift the burden of higher labour costs onto consumers by increasing prices. Implementation of a uniform national minimum wage ignores this type of heterogeneity, and could lead to intra-industry changes in concentration and inequality.

Keywords: Minimum wages, employment effects, firm size, international trade, concentration

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