Estimating the Impact of Minimum Wages on Employment, Wages, and Non‐Wage Benefits: The Case of Agriculture in South Africa

Abstract

Assessments of the impact of minimum wages on labor market outcomes in Africa are relatively rare. In part this is because the available data do not permit adequate treatment of econometric issues that arise in such assessments. This paper, however, attempts to estimate the impact of introducing a minimum wage law in the agriculture sector in South Africa, based on 15 waves of the biannual Labor Force Survey conducted between September 2000 and September 2007. The chosen sample includes six waves before the legislation's effective date (March 2003) and nine afterwards. To assess whether the changes experienced by farm workers are unique, we identify a control group that has similar characteristics to the treatment group. Our econometric approach involves using two alternative specifications of a difference‐in‐differences model. We test whether employers reduced employment, and whether they responded at the intensive margin by reducing hours of work. The results suggest a significant employment reduction in agriculture from the minimum wage (and particularly a noticeable move away from employment of part‐time workers), an increase in wages on average, and a rise in non‐wage benefits compliance. Our analysis also indicates that, firstly, overall average of hours worked fell in the post‐law period, suggesting that employers adjusted to some extent on the intensive margin. Secondly, it appears that hours of work increased more in areas where wages were lower in the pre‐law period, driven largely by the fall in part‐time employment.