Estimating the Impact of Minimum Wages on Employment, Wages and Non-Wage Benefits: The Case of Agriculture in South Africa

University of Cape Town Development Policy Research Unit Working Paper No. 12/149

20 Pages Posted: 4 Dec 2012

See all articles by H. Bhorat

H. Bhorat

University of Cape Town (UCT) - Development Policy Research Unit

Ravi Kanbur

Cornell University; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Benjamin Stanwix

University of Cape Town (UCT) - Development Policy Research Unit

Date Written: July 1, 2012

Abstract

Assessments of the impact of minimum wages on labour market outcomes in Africa are relatively rare. In part this is because the data available do not permit adequate treatment of econometric issues that arise in such an assessment. This paper attempts to estimate the impact of the introduction of a minimum wage law within the Agriculture sector in South Africa, based on 15 waves of the biannual Labour Force Survey (LFS), starting in September 2000 and ending in September 2007.

The chosen sample includes six waves before the legislation's effective date (March 2003) and nine afterwards. All 15 waves are pooled and treated as repeated cross sections over time. In order to assess whether the changes experienced by farm workers are unique, we identify a control group that has similar characteristics to the treatment group. Our econometric approach involves using two alternative specifications of a difference-in-differences model. We test whether employers reduced employment, and whether they responded at the intensive margin by reducing hours of work. The law also required non-wage benefits to be implemented, and we track the response here in the form of one such provision, namely that of a written contract.

The results suggest a significant reduction in employment in Agriculture from the minimum wage, an increase in wages on average, no significant change in hours worked and a sharp rise in non-wage compliance.

Suggested Citation

Bhorat, Haroon I. and Kanbur, Ravi and Stanwix, Benjamin, Estimating the Impact of Minimum Wages on Employment, Wages and Non-Wage Benefits: The Case of Agriculture in South Africa (July 1, 2012). University of Cape Town Development Policy Research Unit Working Paper No. 12/149. Available at SSRN: https://ssrn.com/abstract=2184248 or http://dx.doi.org/10.2139/ssrn.2184248

Haroon I. Bhorat (Contact Author)

University of Cape Town (UCT) - Development Policy Research Unit ( email )

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Ravi Kanbur

Cornell University ( email )

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Centre for Economic Policy Research (CEPR)

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IZA Institute of Labor Economics

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Benjamin Stanwix

University of Cape Town (UCT) - Development Policy Research Unit ( email )

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South Africa

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