Coffee and the minimum wage – A short reflection

Coffee and the minimum wage – Huge congratulations to the NEDLAC partners on agreeing to a national minimum wage. (edit: written just before the signing was cancelled) Over a chat at my local coffee shop, I chatted about the minimum wage with the baristas.

I bought a cappuccino which cost R 23-00 (lets just call it R 20-00 -around US $1,5) ). Remember, this is Mzansi (a colloquial name for South Africa), most unequal country – some spend R 20-00  on a coffee, others work an hour to earn less than R 20-00 an hour, and many do not work at all.

3 baristas at work. If they earn less than the minimum wage that is around R 3 200-00 per month per person (around US$ 230-00 per barista) – R 20-00 times 40 hours times 4 weeks. My assumption, i did not have the gall to ask them what they earn.  An increase would result in a wage bill of R 9600-00. The three baristas will no doubt plan their expenditure well if an increase occurs. I was comfortable to ask what they would do with an increase, and the responses were:

  • have enough money for taxi fare to get transport kids to a better school
  • perhaps take a distance course to get a better jon
  • send money home to help more
  • an investment policy or a better funeral plan

But also a worry ‘we need more customers’.

Some more arithmetic – you need to sell 480 cappuccino’s to meet the wage bill (or around 16 cups a day). Next, assuming that labour costs are half of all costs (and maybe a tiny profit), that is 960 cups of coffee. Is that doable? i do not know. But it seems like an awful lot of coffee to sell. The response at the firm level will be interesting to observe once the minimum wage is introduced.

Some options for the owner:

  • Reducing one job and profits soar, or perhaps just keep the business afloat. Now you could attribute such a response to an increased wage bill due to a minimum wage, or alternatively to a lack of demand.
  • Increasing the number of baristas – probably unlikely, but not because wages are high, but demand is unlikely to increase enough. South Africa has very low economic growth projections.

The point being that bedding down the minimum wage requires making it easy for firms to be not only compliant, but profitable, and employment creating. As implementation arrangements are designed, a consideration of incentives and even a reduction of corporate tax must remain on the agenda.It will require some tough and imaginative concessions on both sides to make this work.

The policy goal could be summarised as   buying a coffee that is – single origin, fairtrade compliant, locally/African sourced, made by a barista earning more than a minimum wage in a firm that growing employment supported by a clientele who have larger amounts of disposable income. That is one demanding list, but one that has to be met for economic reforms to be inequality reducing. Remember Mzansi is one unequal place.

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