Have Minimum Wages Benefited South Africa’s Domestic Service Workers? Tom Hertz
Have Minimum Wages Benefited South Africa’s Domestic Service Workers?
Tom Hertz Department of Economics, American University Comments welcomed at: email@example.com First draft July 9, 2004 This version October 6, 2004
Introduction and Summary
In September of 2002 South Africa’s roughly one million domestic workers – about 840,000 predominantly African and Coloured women who work as housekeepers, cooks and nannies, and another 180,000 men who work primarily as gardeners1 – were granted formal labor market protection, including the right to a written contract with their employers, the right to paid leave, to severance pay, and to notice prior to dismissal (Department of Labour, 2002). Employers were also required to register their domestic workers with the Unemployment Insurance Fund (UIF) and to withhold UIF contributions from their paychecks; (since April of 2003 domestic workers have been entitled to unemployment benefits). In November of 2002, a schedule of minimum wages, including time-and-a-half provisions for overtime work, went into effect. The minima were set above the median hourly wages that prevailed at the time, making this a significant intervention in the domestic worker labor market. This paper attempts to determine if these regulations have had any effect on wages, employment levels, hours of work, and the conditions of employment. I find that the regulations do appear to have raised wages: Average nominal hourly wages for domestic workers in September of 2003 were 23% higher than they had been in September 2002, while for demographically similar workers in other occupations the nominal wage increase was less than 5%. Econometric evidence supports the conclusion that the wage increases were caused by the regulations, since the largest increases are seen in places where the greatest number of workers were initially below the minimum wage. The regulations also appear to have had an effect on some of the non-wage conditions of employment. The proportion of domestics who report having a written contract with their employer rose from 7% in February of 2002 to 25% in September of 2003; and the number who report UIF deductions rose from 3% to 25%. I find that the regulations are associated with a statistically significant reduction in hours of work among the employed, which fell by about 4% for domestic workers, but were essentially constant for workers in other occupations. Domestic worker employment levels also appear to have fallen, by roughly 3%, but the decrease was not statistically significant, nor did I find econometric support for the proposition that it was causally connected to the wage changes. Instead, the decrease in employment seems to parallel the rate of decline of
These estimates are based on the September 2002 Labour Force Survey. Domestic workers represent roughly 9% of all formal and informal employment in South Africa.
the employment-to-population ratio for demographically similar workers in other occupations. The net effect of these changes in wages, hours, and employment was that domestic worker earnings per capita grew in real terms from September of 2001 to September of 2003, while earnings per capita from work in other occupations by poorly educated African and Coloured employees did not keep pace with the CPI. These findings, although preliminary and subject to several significant caveats, suggest that the minimum wage for domestic workers has contributed to raising the purchasing power of one of the lowest-paid segments of the population.
The primary data come from the five most recently published waves of the semiannual Labour Force Survey, undertaken from September of 2001 through September of 2003. They include two waves prior to the regulations’ effective date, one on the cusp, and two after. The surveys cover roughly 30,000 households each, using a rotating...
References: Ashenfelter, Orley, Angus Deaton and Gary Solon (1986). “Collecting Panel Data in Developing Countries: Does it Make Sense?”. LSMS Working Paper No. 23, World Bank, January.
Card, David, and Alan B. Krueger (1995). Myth and Measurement: The New Economics of the Minimum Wage, Princeton: Princeton University Press.
Department of Labour, Republic of South Africa (2002). “Basic Conditions of Employment Act (75/1997): Sectoral Determination 7: Domestic Worker Sector, South Africa.” Government notice No. R. 1068, 15 August.
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