Productivity should be part of wage talks

2010-07-10 11:37

South Africa isn’t the only country in the

world to face labour unrest. From Greece to India to China, unions are baring

their teeth. In some countries, such as Greece, they are fighting cutbacks. In

others, such as China, they are battling low pay.

All this activity leads to questions. When are ­wages too low? When

are they too high? Are South African wages too high?

There’s always been some controversy about the wages paid at

sweatshops. These are often a pittance, and working conditions are bad. But, as

much as rich countries’ citizens may protest, one could argue that these workers

are better off with a job than without one. Still unhappiness over labour

conditions in China is spreading. Chinese workers at Toyota and Honda plants

went on strike in a series of protests over wages in the Chinese manufacturing

industry. At Honda, workers were demanding a 70% pay increase, with migrant

workers threatening to go home if their ­demands weren’t met.

In some instances, pay went up. Some economists started saying that

China was on the path towards losing its low-wage

economy status.

The key point about China is that workers there weren’t being

compensated for their productivity.

Economics teaches us that a pay rise in line with inflation plus a

productivity increase won’t cause inflation to go

up. That’s the ideal pay for workers – the answer to the question whether wages

are too high or too low.

In South Africa, what is missing from the debate is the need to

bring productivity into the equation.

Above-inflation salary hikes can be justified if productivity increases compensate for them. At the very

least, the issue needs to be considered when judging wages – which it hasn’t


Recently, there was a major focus in the media on job losses that

coincided with high wage increases. By chopping

numbers, employers can keep the productivity per

worker higher and so are able to afford the salary hikes.

This is why we see high salary ­increases often coinciding with job

losses. The June Reserve Bank Quarterly Bulletin reported that in the

construction sector, for instance, there was a 16.7% surge in remuneration,

while the number of jobs last year declined by 38 700 last year.

To answer the question as to whether South African workers are paid

too much, their remuneration increases have to be adjusted for productivity rises to arrive at “nominal unit ­labour


The Quarterly Bulletin found that, for the economy as a whole,

nominal unit labour cost increases accelerated from 5.7% in the third quarter of

last year to 8.8% in the fourth quarter.

This is higher than the upper inflation target limit of 6% – and

thus too high.

In manufacturing (which isn’t distorted by the civil service), the

unit labour cost rose by 7.3% – also above the target. But these figures are

considerably lower than the scary numbers quoted above. However, when it comes

to the civil service, measuring productivityproductivity, in terms of the strict

economic definition.

becomes problematic. It is usually measured as government spending per worker,

which means the government can spend unproductively and this will still be

measured as productivity, in terms of the strict economic definition.

The same isn’t strictly true for ­Eskom, however, because it

produces a specific commodity, and objective productivity increases can be measured.

But given that Eskom’s salary bill is going to rise by about 12%,

inflation is about 5%, and the economy will grow by about 3%, it’s clear that

unit labour cost increases at Eskom will be above the inflation rate. And how

productive are the people who have left South Africa with so little electricity

reserve margin that we’re in a constant state of readiness for a blackout?

Certainly, no one would argue that Eskom workers’ productivity justifies their 9% salary hike and housing

allowance. But the same holds true of its management, who received salary

increases of between 73% and 91%. It’s clear that most of the unionised

employees in SA – those with “decent jobs” – are receiving salary increases that

aren’t justified by their productivity and


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