The proposed minimum wage of P4000 could lead to economic consequences that may have negative effects on the labour market, a Business Botswana survey revealed, urging the newly minted Umbrella for Democratic Change government to rethink the policy proposal.
Targeting 27,500 business enterprises, the survey posed a critical question to the government: “Who pays for it?”
Operations
The business community highlighted that an increase in the minimum wage would trigger inflation. The wage hike, estimated at P128, is expected to significantly raise operational costs, leading to higher prices as businesses attempt to absorb the additional labour expenses. Companies are reassessing their expansion plans in light of the proposed minimum wage. Many are considering hiring only those whose productivity justifies the P4,000 rate, a move likely to reduce job opportunities for young, inexperienced, or less-educated workers. The proposed wage base may also limit employment prospects for disabled individuals due to the high cost of labour and the demand for immediate productivity.
Automation
Studies suggest that minimum wage policies can accelerate the automation of low-skilled jobs by replacing workers with technology. Evidence indicates that 10 percent of firms may automate routine tasks in response to rising labour costs. Labour-intensive industries are expected to be hit hardest by the increase in the minimum wage. For those who lose their jobs to automation, the risk of prolonged unemployment is greater, particularly in sectors reliant on manual labour. While automation may create economic opportunities for highly skilled individuals, it will likely do so at the expense of low-skilled workers.
Constructive Dismissal
Businesses are considering significant changes to employee contracts to accommodate the wage increase. About 5.5 percent of respondents are inclined to reduce employee benefits, while 4.4 percent are considering cutting back working hours. Reducing benefits and hours can harm employee morale and increase turnover rates. There is a heightened risk to financial security, particularly concerning retirement planning. Additionally, reduced hours can lead to inconsistent schedules that are difficult to manage. For corporations, these strategies may stifle productivity and ultimately impact their bottom line.
Retrenchment
Findings reveal that the majority of businesses are opting for staff reductions as a cost-cutting measure. One-third of respondents cited retrenchment as a viable solution for achieving long-term financial stability. However, layoffs come with hidden costs, such as decreased productivity and severance payments. Unemployment is expected to rise sharply, as the private sector has indicated it lacks the financial capacity to absorb the wage increase.
