National minimum wage in South Africa: A Computable General Equilibrium Model Analysis

Working paper 650
Author(s): 
Jean Luc Erero
Publication date: 
November, 2016
Classification-JEL: 

This paper analyses the economy-wide impact of the national minimum wage on the South African economy. The analysis was conducted using a static computable general equilibrium (CGE) model of South Africa, which captured the observed structure of South Africa’s economy. The parameters of the CGE equations were calibrated to observed data from a social accounting matrix (SAM) for 2010. One policy option with three scenarios was considered. The results from the policy scenario highlight that an increase in the national minimum wage has a negative and distortive impact on the reported macro-economic variables. This is particularly seen by a decline in GDP, employment and welfare. For instance, in the first scenario the real GDP decreased by 1.8506% when the national minimum wage was set to R3000 across all sectors. 

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