QUESTION 1

DOMESTIC workers will no longer be subjected to meagre salaries as the government has adjusted the minimum wage for domestic workers, with effect from December last year. The announcement was made by the department of Labour Minister Mildred Oliphant and it coincided with the signing into law of the National Minimum Wage Bill by President Cyril Ramaphosa.

According to the Department of Labour's new rates, domestic workers working in Area A (bigger metropolitan areas) who work more than 27 ordinary hours per week, must be paid a minimum of R 13,69 per hour. Workers who work fewer than 27 hours per week, must be paid a minimum of R 16,03 per hour. This will mean that a domestic worker who works 45 hours per week will now earn a minimum of R 2 669,24 a month. Gardeners, drivers or people who look after children, the aged, sick, frail or disabled in a private household, all qualify as domestic workers.

Question

With the aid of a diagram, discuss the welfare effect of this new legislation if the new minimum wage is below the equilibrium wage rate with labour hours as your quantity variable.