The actions of organised labour and the Department of Labour are to blame for South Africa’s rising unemployment because neither understands basic economics.
This is the view of Professor Johannes Fedderke of Wits university (“Higher Pay Means Fewer Jobs”, May 16). He adds that as their actions keep many of the poorest of South Africans out of jobs, their policy stance is “immoral”.
Fedderke also argues that the answer to unemployment is under our noses. As an example, he suggests that a lower average monthly wage in manufacturing in August 1998 of R4 314,90 per month instead of R4 358,48 would have meant 9 462 more jobs. This seems beguilingly easy, but of course it is not so straightforward.
The average wage of more than R4 000 a month Fedderke cites includes wages at the upper end of the scale, such as managers. The data used by Fedderke includes salary benefits such as vehicle allowances, medical aid contributions, and housing schemes that upper- income (and rarely lower-paid) employees receive.
According to Statistics South Africa, more than four million of the country’s employed — or more than a third of the total — earned wages of less than R1 000 a month in 2002, and many of these jobs were in the formal sector.
How low does Fedderke think wages should go to create the jobs required?
It is common for people to have to pay R10 a day for transport to get from townships to their places of work. Added to this are payments required for food, shelter and clothing. Arguing for lower wages, given the increases in the prices of these items, is perilously close to arguing that workers must choose between basic nourishment and school clothing for their children. Is this not the morality that Fedderke’s argument is really about?
The data also reveals that average wages in manufacturing, adjusted for inflation, have continued to rise since the mid-1980s, and particularly steeply from 1996. At the same time employment plummeted.
So, what’s the catch? Simple arithmetic tells us that an average can change because of changes in the values of the different items in the basket. This has certainly been occurring with average wages. Recent patterns of employment have meant that low-skilled, low-waged people have been retrenched. This, in itself, causes the average wage to rise. In other words, rising unemployment could be said to have underpinned rising wages rather than the reverse.
The simple fact, therefore, is that there is plenty of low-wage employment, at wages which have been falling both in terms of their buying power and relative to those of the more highly skilled — not to mention the pay increases awarded to chief executives.
The buying power of workers’ wages is more affected by the failure to pass on recent maize price reductions to the consumer than changes in the nominal wage itself.
While the prices received by producers for food products such as maize are lower than a year ago, in March consumers were still paying prices around 12,4% higher. But, rather than challenge the working of this “free market” — only four large grain traders control the South African market — workers and their unions must accept sacrifices. According to Fredderke, the value of their wages in terms of what they can buy should be falling at a greater rate than they have been already.
In addition, he overlooks the fact that the income of most workers is shared among extended families because of the lack of jobs.
In a survey of shop stewards in the plastic bag manufacturing sector (relatively well-paid compared with sectors such as clothing), we found the average take-home pay to be R1 984 a month. However, each shop steward had an average of five and a half dependents to support. When the total family income was calculated (the shop stewards wage and other income sources), the average income for each member of the family was R393 a month. This real figure has to be considered when we talk about lowering wages further.
Despite the growth employment and redistribution (Gear) policy’s promise of large-scale job creation, large-scale job losses have occurred in sectors such as footwear and clothing, which have the highest shares of unskilled employment and among the lowest wages. This means that, as clothing and footwear workers are retrenched, average manufacturing wages increase.
In the textile sector, recent research revealed that the modern-isation of outdated machinery and equipment in the context of stagnant demand had also meant reductions in lower-waged employees, and increased demand for skilled labour. Demand for South African textiles was low due to the poor performance of the clothing industry, and as a result textile firms could not operate at full capacity.
Fedderke suggests firms will replace labour with capital if wages are too high. Yet the cost of capital has been high and investment rates stubbornly low.
Lower wages could well lead to a recessionary cycle in which lower demand falls further rather than increasing jobs. All this is not to say wages are irrelevant; just that they are part of a bigger picture. It is to be expected that in annual wage negotiations, workers will push for higher wages and employers will counter.
Effectively organised unions facilitate this interaction. And, firms that want to build employee skills and experience don’t want hungry workers, nor do they want to fire workers every time somebody at the factory gate offers to work for less.
Rather we need to look at the bigger picture. South Africa needs jobs, but this cannot and should not come by lowering standards of living. Instead, macroeconomic policy should be directed towards raising demand, and micro- economic policy to raising skills and productivity.
Blaming unions and arguing that they have “captured” the Department of Labour is mere ideological verbiage and hardly designed to help the forthcoming Growth and Development Summit reach sensible and much-needed agreement. Far more important is tackling the legacy of under-skilled workers that results in an unbalanced labour market, sub-optimal human capital development, low productivity and structural unemployment.
While “scientific” methods in economics have their uses, it might also be worthwhile going out to our factories and communities to find out what is really happening.
David Dickinson lectures at Wits Business School. Simon Roberts is associate professor in economics at Wits University