Living wage vs minimum wage: How to address pay disparity and reduce working poverty

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However, recent research from the University of Cape Town suggests that workers who live in urban areas require at least R15,000 per month if they are to live a decent life.

Minimum wage and living wage

Cosatu and other trade unions welcomed the implementation of a legislated minimum wage in 2019 and the subsequent inflationary increases introduced by the Department of Labour each year. However, the unions still acknowledge that the legislated minimum wage does not replace the call for living wages, it is simply a springboard toward the transition to a living wage in the foreseeable future.

The call for living wages is nothing new, trade unions have been demanding a minimum living wage as far back as the 1980s. I recently came across an old Cosatu living wage campaign document in which the federation demanded a minimum living wage for all workers, a 40-hour work week, paid public holidays, and six months maternity leave. Decades later, the struggle for living wages is still valid.

But is the living wage possible given our high level of inequality, poor economic growth, and other macroeconomic factors? Growing the economy, creating jobs, and fixing structural issues are some of South Africa’s immediate priorities, as evidenced by most political party manifestos ahead of the recent elections. Regardless, the country needs a clear strategic plan to adopt a living wage in the short- to medium-term.

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A strategic plan for a living wage

Corporate South Africa can play a significant role in addressing the issue of working poverty by embracing and developing actionable plans towards implementing a living wage to help their employees earn decent wages that afford them a dignified standard of living. Efforts are being made to address this pay disparity, particularly through legislative measures such as specific sections in the Companies Act Amendment Bill.

They seek to introduce transparent disclosure of pay disparities in the remuneration reports of listed and state-owned companies to hopefully drive the implementation of fair and responsible pay for all employees. Yet, it is essential to recognise that legislating for transparency is not enough: we need bold and decisive leadership from corporate South Africa.

For corporate South Africa, initiatives like the UN Global Compact’s Forward Faster Campaign on living wages advocates companies to develop action plans to ensure that all employees across an organisation earn a living wage by 2030 and establish joint action plans with contractors and supply chain partners to work towards achieving living wages by 2030. The 2030 deadline seems appropriate in the South African context as it should give sufficient time to address macroeconomic issues while implementing and tracking milestones toward achieving living wage targets by 2030.

Over 110 South African companies have pledged their participation in the UN Global Impact Initiative; notable participants include Old Mutual, Sanlam, and Discovery; all implemented an internal minimum wage of R15,000 per month for all South Africa-based permanent employees in 2023. Notably, the R15,000 minimum wage is above PwC’s estimated living wage for an average South African family of four of between R6,972 and R12,756.

One of the primary concerns surrounding the push for fair pay is the potential for companies to pass the cost of this exercise onto consumers through price increases. While it is understandable that businesses may seek to protect margins, this should not come at the expense of the customer. Instead, companies should explore alternative avenues, such as increasing operational efficiencies or reevaluating pricing strategies, to absorb these additional costs without unduly burdening consumers.

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Employee Share Ownership Schemes

One way of aiding the push towards living wages is through rewarding employees who also often play a significant role in implementing strategies and driving profitability and sustainability, in a fair and transparent manner.

Employee share ownership schemes contribute towards reducing inequality by giving employees the opportunity to own shares in the companies they serve and share in the fruits of their labour through capital appreciation and dividends. Such schemes play a key role in ensuring that everyone who contributes to a company’s success is rewarded in a manner that is commensurate with their contribution, just as shareholders reward business leaders through shares and other mechanisms for leading companies through difficult times, or developing growth strategies that reap rewards.

Addressing poverty and creating jobs is a vital, and immediate, concern. Beyond this, however, the private sector needs to be looking towards a social compact that ensures a living wage and a decent life for all.