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Can minimum wages effectively reduce poverty under low compliance? A case study from the agricultural sector in South Africa

Bassier, Ihsaan and Ranchhod, Vimal (2024) Can minimum wages effectively reduce poverty under low compliance? A case study from the agricultural sector in South Africa. Review of Political Economy, 36 (2). 398 - 419. ISSN 0953-8259

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Identification Number: 10.1080/09538259.2024.2318957

Abstract

What were the effects of a 52 per cent increase in the minimum wage in the agricultural sector in South Africa in 2013? We estimate the short run effects of this policy change on the income, employment, and poverty rate of farmworkers, using individual-level panel data from the Quarterly Labour Force Surveys (QLFS). Before the implementation date, 90 per cent of farmworkers were paid below the new minimum wage level. We find that the wage gain of farmworkers is strongly quadratically related to pre-implementation wages, suggesting lower compliance as the gap between the minimum and the pre-implementation wage increases. We estimate that farmworkers received a median wage increase of 9 per cent as a result of the policy, and we find no evidence of job losses. Overall, farmworkers were 7 per cent less likely to have household income per person below the poverty line. One possible explanation for these outcomes is that endogenous compliance may mitigate against unemployment effects. While the minimum wage literature is large, our paper adds to the small subset of this literature on large increases, partial compliance, and poverty effects.

Item Type: Article
Official URL: https://www.tandfonline.com/journals/crpe20
Additional Information: © 2024 The Author(s)
Divisions: Centre for Economic Performance
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HD Industries. Land use. Labor
JEL classification: J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J38 - Public Policy
I - Health, Education, and Welfare > I3 - Welfare and Poverty > I32 - Measurement and Analysis of Poverty
J - Labor and Demographic Economics > J0 - General > J08 - Labor Economics Policies
Date Deposited: 22 Apr 2024 10:51
Last Modified: 13 Jun 2024 02:33
URI: http://eprints.lse.ac.uk/id/eprint/122711

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