Minimum Wages and Agricultural Production in South Africa

Abstract

In this paper, we take the unification of agricultural minimum wages in 2003 as a natural experiment involving exogenous change in the minimum wage level and examine the Census of Commercial Agriculture to empirically investigate producer responses at the district-product group level. Results from a first-difference estimator suggest that an increase in the minimum wage reduced both profits and low-wage employment in some product groups, and these changes were masked at a more aggregate level. We also observed an increase in the unit output value in some product groups. These findings are consistent with the existing literature showing that negative employment impacts are observed when minimum-wage jobs are dominant and that increasing the minimum wage leads to mechanization of tasks and upgraded skill contents of labor. As a policy response, job training and internships prior to increasing the minimum wage should help reduce the costs of job search as well as those of hiring. Future agricultural minimum wage research should consider heterogenous production technologies and associated impacts.