Is the Agricultural Sector Facing a Change from Capital to Labour?

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The highly anticipated increase in the minimum wage for farm workers in South Africa following strikes by farm workers in the Western Cape came into effect on the 1st of March 2013. (Ramotloa, 2013) “After extensive national public hearings by Department of Labour (DoL) that started last year ending in January 2013, Labour Minister Mildred Oliphant announced on February 4, that the new salary will be pegged at R105 a day from R69. Oliphant announced that the wages would rise by inflation plus 1.5% in subsequent years.” (Ramotloa, 2013) This essay will analyze the effects of the increase in farm workers’ minimum wage by discussing whether the agricultural sector is experiencing a shift from labour to capital and the expected implications of an increase in wage rate. This will be analyzed by using the AS-AD model and a model of the labour market together with information that I find relevant for the analysis in this essay. Citing Nieuwoudt (WL, 1984), GN Sparrow, GF Ortmann, MC Lyne and MAG Darroch (GN Sparrow, 2008) state that the supply of labour to agriculture in South Africa is relatively price elastic due to the high percentage of relatively unskilled and unemployed people. This means that a small change in the wage rate is accompanied by a large change in the quantity of labour supplied in the agricultural sector of South Africa. A minimum wage is aimed at redistributing earnings and lifting poor workers out of poverty by increasing wages of workers in designated sectors of the economy ((DPRU), 2008) . A higher minimum wage might seem like a good thing, but it’s not necessarily good. The reason is that an increase in the minimum wage may lead to an increase in unemployment ((DPRU), 2008). But the extent to which unemployment increases depends on the elasticity of employment levels to changes in the wage rate. Because the supply of labour in the agricultural sector in South Africa is relatively price elastic (WL, 1984) as mentioned in the previous paragraph,...