During the apartheid era, many South Africans were forcibly relocated to ‘bantustans’ and other decentralized regions with little economic basis. The only manufacturing employment was provided by industries attracted to the areas by selective incentives and low wages. After the transition to democracy, the remaining incentives were removed and minimum wages were extended to these (previously exempt) areas. This study of workers and managers in the clothing industry in Phuthaditjhaba, the old capital of the QwaQwa homeland, indicates that such developments may exacerbate unemployment and poverty in the region. Taiwanese export‐oriented firms (the largest employers) are most threatened by the changes as they prefer to pay new employees low wages, and then increase them in line with experience and productivity. Falling employment will translate directly into rising poverty as very little welfare support is available for the unemployed in South Africa. Given that people (whether employed or unemployed) consistently rank increases in employment over wage increases, this suggests that minimum wage determination should be particularly sensitive to local conditions and potential employment losses.