The impact of minimum wage increases on the South African economy in the Global Policy Model

Ilan. Strauss, Gilad. Isaacs and Jeronim. Capaldo

ILO Working Papers from International Labour Organization

Abstract: This paper uses the United Nations Global Policy Model (GPM) to assess how increasing minimum wages might impact the South African economy by increasing the share of income going to workers (the ‘labour share’) – in contrast to the share that accrues to capital through profits and property income. We simulate the implementation of a national minimum wage through increasing labour compensation in a manner which sees real-wage growth ‘catching up’ to and then outstripping labour-productivity growth in the period 2015–2025; we refer to this as increasing ‘relative’ real wages. The results indicate that higher ‘relative’ real wage growth rebalances national income: the labour share increases since relative wages rise (by definition) and employment is roughly maintained (endogenous response). A rising labour share has in turn a positive effect overall on the South African economy in the model: consumption expenditure rises as national income shifts towards wage earners as a whole, who have a higher propensity to consume than profit earners. However, there are moderate or small negative effects as investment as a share of GDP falls marginally, as the profit rate falls (though the absolute level of investment is higher as GDP rises), employment declines marginally, and there is slight weakening of the current account.

Keywords: minimum wage; economic implication (search for similar items in EconPapers)
Pages: 1 online resource (39 p.) pages
Date: 2017
New Economics Papers: this item is included in nep-lma
References: Add references at CitEc
Citations:

Published in ILO research paper series

Downloads: (external link)
https://ilo.userservices.exlibrisgroup.com/view/de ... NST/1249109850002676 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ilo:ilowps:994969993202676

Access Statistics for this paper

More papers in ILO Working Papers from International Labour Organization Contact information at EDIRC.
Bibliographic data for series maintained by Vesa Sivunen ().