South Africa’s short-term prospects of job creation lie in the growth of medium-sized companies (employing between 100 and 1 000 people) as small businesses are hampered by red tape and the big ones may be looking to foreign markets. But growing the medium enterprise sector requires tough action, such as breaking the Telkom monopoly to help grow the IT sector. This is according to economist Mike Schussler.
Schussler spoke to the Mail & Guardian at the release of the South African Employment Report, a two-year research project released in conjunction with The Union Association of South Africa. The report studies formal sector earnings, tax and benefits, and provides an international comparison.
It found that small and medium firms employ 52% of all South Africans in the formal sector. Small firms are hampered by bureaucracy, while large firms are looking at foreign expansion and those that come in, such as Barclays, buy existing firms.
This makes medium-sized firms the best placed for employment expansion. But it requires breaking the Telkom monopoly to reduce fixed line costs and ensure that the IT sector, dominated by medium-sized firms, attracts new entrants, from call centres to Internet service providers.
The report found that those lucky enough to be among the 6,5-million in formal employment earn more than initially thought. The average worker in the formal sector earns R9 313, 20% of which goes to pensions, medical, unemployment and other insurance.
This is more than the R7 100 average earnings found by the Survey of Employment and Earnings. Schussler attributes the difference to the deduction method for pensions and medical aid, which are taken before tax.
Large firms pay the best, with an average monthly pay of more than R10 000 a month and of these, the multinationals rate highest, while small firms pay roughly R7 000 and the government about R9 000. The informal sector pays an average of R1 500 a month.
Utilities were found to be the best paying sector at just less than R20 000 a month, well ahead of services and transport. Retail and construction pay the lowest average monthly rate at just more than R5 000 a month.
The report compares South Africa to selected Organisation of Economic Cooperation and Development (OECD) countries. In current dollar terms, South African manufacturing workers earn more than those in Spain and Greece and three times more than peer emerging economy Mexico. South Korea is the only better paying emerging economy.
Employment growth for 2003 is estimated at 2,7%, led by construction with 5% growth. Mining, its gold sub-sector shedding jobs, grew at an overall rate of just more than 4%. Schussler notes that the economy is now in a far better position, creating roughly 10 000 jobs a month for the past two years, hardly enough, but better than in the years before 2001.
South Africans pay relatively high “all-inclusive” tax (including benefits), but enjoy relatively lower benefits. It has the fourth-highest all-inclusive tax rate out of 15 countries, which will be hard to bring down until unemployment is reduced.
South Africa’s unemployment insurance fund pays out benefits for six months before the state welfare system kicks in. The OECD average is 18 months.