Impact of Minimum Wage in South Africa

Table of Contents

Introduction 1

Rational for government imposing minimum wage in the labour market 1

Welfare impact of government intervention in the South Africa labour market 2

Positive welfare of the minimum wage policy 3

Conclusion 4

Bibliography 5

Introduction

The South African government intervenes in the labour market with the intention of wanting to improve the market for all those in it, but especially to protect the poor (Schultz & Mwabu, 1998). Even though the reason behind government intervention is positive, and result are not necessary those that they were hoping for.

The government intervenes in the market with the use of different policy, in this paper the main focus in on the minimum wage as one of government intervention in the market.

Firstly, the rationale behind government intervention in the labour market will be briefly discussed. Secondly, the welfare impact of the minimum wage on the supply and demand of the labour market. This will be done by incorporating the competitive model with the aid of a graph.

Rational for government imposing minimum wage in the labour market

Minimum wages are widely used in developing countries including South Africa to protect the vulnerable workers from exploitation such workers are the unskilled workers, reduce wage inequality; which is a major thing in the South African labour market, and to lift the working poor of poverty (Pauw & Leibbrandt, 2012). The political popularity of minimum wage stems in part from the fact that the policy offers a means for redistributing income without having to increase government spending or establish formal transfer mechanisms (Paiw & Leibbrandt, 2012).

Minimum wages are also used to ensure that workers are not paid at a level below the minimum standard of living, and to protect the workers from the many distortions associated with the market mechanism such as discrimination, non-competitive conditions in the product market (Matjeke)....