While the labour movement is celeÂbrating the victories registered by workers in this year’s wage negotiations, analysts have warned that high wage settlements could have a negative effect on the country’s inflation outlook.
The wage deals are likely to result in another hike when Reserve Bank Governor Tito Mboweni announces the repo rate next week.
The central bank inÂcreased its benchmark interest rate by half a percentage point to 9,5% in June on concerns that rising food and fuel costs are boosting wage demands, adding to inflation pressure. Mboweni said at the time that the outcome of wage negotiations had not been factored into the inflation outlook.
Since the wage negotiations earlier this year, unions organising in major sectors of the economy — such as chemical, metal, steel and engineering — have managed to push employers to settle for wage increases of 8% or more, with inflation at 6,3%.
Unions in other industries, such as collieries and gold mining, are demanding between 12% and 15% wage increases, respectively. The benchmark for the high wage settlements in various sectors was set by the public sector, which settled at 7,5% in June.
This represented 2,3 percentage points above inflation at the time. Wage settlements last year reflected the tradition of pegging increases in a one to two percentage point band above inflation.
Mike Schussler, a T-Sec economist and labour specialist, says all wage agreements above 6% will affect inflation, which exceeded the 6% target for the first time in four years in April, rising to 6,3%.
‘More than half of the actual costs in the economy are made up by wages. High wage settlements will add to the upward inflationary forces, already extant in the economy,†says Schussler.
In addition to the 7,5% wage increase, the government has offered special packages ranging from 14% to 51% to specialised categories in the public service.
Unionists argue that the high wage settlements will improve the economic standard of workers and contribute to increased productivity.
The National Union of Metal Workers of South Africa says the Reserve Bank’s tight monetary policy undermines economic growth and employment.
‘Severe disparities in income distribution continue to pose a fundamental constraint to the attainment of sustainable growth. Low wages and a high level of poverty among the majority of the population have led to their extremely poor purchasing power. Lower wages are a huge disincentive to the economy and have major negative effects for workers. High wages help in addressing apartheid wage gaps, poverty eradication goals and they stimulate local demand,†the union says.
Oupa Bodibe, the executive director of labour research organisation Naledi, says the wage disputes should be understood against the tight economic situation for workers. ‘Workers’ wages have remained stagnant for the better part of the last 13 years … and have not kept up with the cost of living.
‘It is also in a context in which profits have soared, management packages have skyrocketed and productivity has increased. Workers’ share of national income has declined since 1994, while the share going to profit has increased. At best the wage settlements will moderately protect workers’ buying power and will have very limited impact on the wage gap,†says Bodibe.
He says the notion that high wages have driven up prices is speculative. ‘To date I have not seen any empirical work, including the Reserve Bank’s, showing that wages are a major factor in driving up prices,†says Bodibe.
Goolam Ballim, a Standard Bank Group economist, says this year’s wage settlements are not unusually high compared with the benchmark set last year.
‘The mild upside buyers are echoing is the general acceleration in inflation. It is welcome that the blend of the nominal wage and productivity growth is yielding inflation-friendly unit labour costs. Consequently, this suggests a more or less favourable core inflation prognosis and thus far it is not suggesting a dire interest rate outlook,†says Ballim.