The increase in the national minimum wage is expected to increase pressure on businesses in the Free State, especially small and medium enterprises (SMEs) operating in agriculture-dependent cities, says local economist Eugene Buthelezi. The statutory minimum will increase from R28.79 to R30.23 per hour with effect from 1 March.
Buthelezi noted that while the adjustment reflects a 5% increase, its broader significance lies in the cumulative trajectory of wage growth. “Over the past five years, the minimum wage has increased at a compound annual growth rate of around 6.8%, outpacing consumer inflation. For SMEs already dealing with rising input costs such as diesel, electricity, feed and logistics, the additional regulatory wage pressures are further squeezing already narrow margins,” he said.
Buthelezi warned that the increase could lead to labor market adjustments in key sectors including agriculture, retail and hospitality. When the statutory wage exceeds the marginal revenue generated by employees, companies may respond with a hiring freeze, shorter hours, failure to replace departing staff, or a shift to part-time work.
In agriculture, the pressure is particularly acute. Farmers in the Free State are largely price takers in national and global commodity markets and cannot easily increase prices to offset higher labor costs. “Cost absorption rather than cost passing on becomes the key adjustment mechanism, reinforcing margin compression and encouraging reduced labor intensity,” he explains.
Over time, the sustainability of continued wage increases will depend on whether they are in line with productivity gains. In rural areas, where margins are tight, a persistent gap between wage inflation and productivity could accelerate mechanization and capital substitution, reducing opportunities for low-skilled workers.
Buthelezi added that rising compliance costs could also lead to gradual informalization, undermining worker protections and weakening the tax base.
He concluded that sustainable benefits will require additional measures, including skills development, infrastructure investment and better access to finance, ensuring wage growth is supported by real productivity gains rather than employment cuts.
Clement Matroos
www.bloemfonteincourant.co.za