The effect of higher wages on production cost and mechanization: a South African maize sector study

Abstract

The South African labor market was recently characterized by violent and hostile labor strikes by workers demanding exorbitant wage increases. These demands and violent protests overflowed to the agricultural sector, followed by an announcement of a 51% increase in the agricultural minimum wage. Labor costs form an integral part of a producer’s production costs and labor increases will therefore directly affect the profitability of producers. The purpose of this study is to investigate the effect higher wages have on the South African maize sector. Furthermore, to determine whether there is a relationship between higher labor cost and increased mechanization in the maize sector. Quantitative and qualitative research techniques were utilized to address the research problem. The findings of the study include that the higher wages do not have a significant effect on the maize sector as it is less dependent on manual labor and therefore more tolerant to wage increases. Furthermore, it was determined that there is a relationship between the maize sector’s level of mechanization and the impact of higher wages. It was found that the maize sector is more developed and mechanized than other agricultural sectors. Notwithstanding, it is recommended that the sector should maintain the investment in mechanization to increase global competitiveness.