The impact of national minimum wage policy on inflation and unemployment in South Africa: A segmented regression analysis

Abstract

This study aims to investigate how inflation and unemployment responded to the implementation of the national minimum wage (NMW) policy in South Africa. The existing evaluation of this topic is hypothetically based on empirical evidence from other countries because South Africa's NMW policy is still in its early stages since its inception in 2019, and thus the NMW data is still insufficient for evidence-based analysis using classical time series regression approaches. This methodological gap is addressed in this study by employing a segmented regression approach. More importantly, the study contributes to the debate on the efficacy of the policy's morale mandate in alleviating poverty and inequality in the country. According to the study’s findings, the national minimum wage policy significantly exacerbated inflation and unemployment rates in the country. These findings suggest that the NMW policy implementation caused more harm than good to low-income earners and the low-skilled unemployed population, who continue to disproportionately suffer from inflation and limited employment opportunities. Hence, for the NMW policy to fulfill its moral mandate, it should be effectively aligned with other tax and benefit policies for firms to ensure that increases in the NMW rate translate into increases in disposable income while minimising the upsurge in labour costs.