Wages of Inflation

FINANCIAL MAIL

Wages of inflation

By TSHEPO PHAKATHI



The public-sector wage talks and strike threat could be a manifestation of the growing social unrest caused by the disproportionate incentives offered to management and labour.


For though government may argue that a 12% wage hike is unreasonable, the unions are adamant that 6% is paltry and dwarfed by the bonuses, incentives and pay hikes of top management. However, one is tempted to look deeper than the current bargaining process to understand the socioeconomic rationale of both parties and the imminent economic consequences of industrial action.


First, it is important to mention that, depending on the extent and duration of a public-sector wage strike, the socioeconomic consequences could affect both the long-term socioeconomic improvement of many South Africans and the buoyant economic environment.


Economically, protracted strike action could put government's target of 6% economic growth out of reach. Broadly defined, unionised public-sector employees represent 8%-9% of the total SA workforce. This means that industrial action could cost the economy as much as R20bn for each month the strike lasts. Put differently, if the strike action were to last as long as last year's security strike, the economy would lose one-third of its current economic growth of R87bn/year. If one considers the level of cross-pollination between the private and public sectors, it is clear that strike action could poison private-sector productivity and thus cost the economy substantially more.


If all 1m public servants were engulfed in strike action, the economy could be brought to a grinding halt, considering that the departments of health, education, safety & security, and beleaguered home affairs, as well as ports, would be affected. This could cripple private-sector activity as it relies on these government agencies on a regular basis.


Long-term economic growth would be dealt yet another blow if the strike were prolonged: for one, education would be badly affected. The prospects of achieving an educated and skilled workforce could be impaired, if you consider that in Gauteng alone there are 605 000 pupils in state high schools preparing for exams.


Why then do the wage talks in spirit not reflect the broader interests of the economy?

Unions are negotiating to serve what they see as the best interests of their members, who have been hit by higher food and transport costs. Conversely, government is looking after its coffers and the allocated budget for wage increases for the fiscal period spanning the next three-year cycle.


Naturally, government doesn't want to be held to ransom by strike action, and the unions know they have the upper hand, given the shortage of a skilled workers. Government's wage bill could rise by R4bn to about R200bn if it settled at 8%, for example. The net cost to government could be around R3bn if you consider the current income tax and Vat regimes.


Such an increase would change the inflationary outlook, and if it exerted upward pressure on private-sector and parastatal wages, it could well threaten the monetary authority's goal of keeping inflation under 6%. The consequence would be an upward adjustment in interest rates, which could bring a reversal of fortunes for highly indebted wage earners.


Government has a responsibility to keep wage increases within reasonable, sustainable, non inflationary levels; unions have a duty to protect their members from wage erosion.

Perhaps an independent body should mediate over such talks in future and balance the interests of the workers, government and, most importantly, the country.

Phakathi is CE of Phakathi Holdings