As this piece is being written, close to a million public service workers are out on strike demanding a salary increase of 8.6%, and a monthly housing allowance of R1 000. The government has dug in its heels and has offered workers an increase of 7%, and a housing allowance of R700. The government and the unions appear to find themselves in an intractable situation, with COSATU insisting that the strike will continue indefinitely if its demands are not met and ANC economic policies not reviewed, and the government conversely warning public sector unions that excessive wage demands would irreparably harm the economy and compromise growth.
Patients at hospitals are bearing the brunt of the strike, as are pupils at schools where it appears that 90% of teachers affiliated to SADTU have heeded the call for a shutdown. Babies are dying, non-striking teachers are being intimidated.
Legitimate wage demandsThe demands of union members are not illegitimate and, in a country where the inequality of labour market earnings is among the highest in the world and plays a huge role in poverty formation, fighting for an increase of R300 a month (the difference between government’s offer of a R700 housing subsidy compared to worker demands for an amount of R1 000) might seem obstinate, but could well be the difference between a family eating and not eating at night.
It follows then that a proper examination of inequality in South Africa and its structural economic distortion would seem a necessary precursor to any labour-absorbing economic growth strategy. The relational dimension between the two is obvious, and as the ANC goes into its National General Council (NGC) in September, talking about yet another compact with business and labour to stimulate economic growth and create jobs, it would be foolhardy to do so without being mindful of the distribution of income and expenditure in South Africa, and its impact on wage expectations.
It follows then that a proper examination of inequality in South Africa and its structural economic distortion would seem a necessary precursor to any labour-absorbing economic growth strategy.
Impact on the national fiscus But one of the more pertinent questions one needs to ask is what impact the salary demands of public sector workers
will have on the national fiscus, and what is the relationship between this and government being able to deliver on its development mandate. While strike action over wages and working conditions will continue for years to come, so too will protests around a lack of access to basic services, the slow pace of housing delivery, the inability of government to create jobs fast enough, the endemic levels of corruption in the public service, and high levels of violent crime.
Reserve Bank data has been suggesting that the public sector wage bill has been increasing by an average of 6.3% above inflation every year for the past eight years, a progression which economists suggest is unsustainable and which may be ‘crowding out’ other long-term investments. Analysts have pointed out that these figures suggest a ‘runaway’ aspect to public finances and substantially weaken the case of public sector trade unions in the current strike. They also suggest why the government is taking a harder line against strikers, as growth in the public sector wage bill becomes unsustainable.
Data from the Reserve Bank Quarterly Bulletins confirms that at the national level the public-sector wage bill has increased by 8.4%, 11.4%, 10.1%, 9.2%, 13.1%, 12.1% and 18.7% per annum between 2002 and this year. The total wage bill (national provincial and municipal) has increased from R140bn in 2002–03 to R322bn in 2009–10, an average increase of 10.38%.
Besides the inflationary effects, it is argued that immediate budget cuts as well as austerity measures may be required. At a provincial level, the public service salary spend outstripped those at a national level over the past eight years. Provincial increases were between 8% and 10% until 2006–07, after which they sky-rocketed. From then, the increases were 14.9%, 21% and 17.8% in each of the following years. According to analysts, the 21% increase in 2008–09 reflects the effect of the ‘occupation-specific dispensation’ which effectively provided a huge boost to public sector wages.
When the whole eight-year period is considered, both national and provincial figures translate into average real increases in the public sector wage bill of 5.62% and 6.54% above inflation per year. According to Finance Minister Pravin Gordhan, while the economy is well into modest recovery from the recession, with growth anticipated at around 3% this year, we need to set our ambition for growth at 7% per annum for a period of 20 to 30 years in order to build a sustainable economy that will create jobs and tackle poverty. The unplanned expenditure, therefore, from the government’s higher than expected wage offer would place a huge burden on the fiscus, resulting in a carry-through effect of a further R2.7bn in the 2011/12 financial year. Besides the inflationary effects, it is argued that immediate budget cuts as well as austerity measures may be required. It is a scenario that does not bode well for South Africa’s growth prospects and the 7% target, especially in a context when the fiscus is carrying a deficit of 7.3% in the current financial year. There are no reserves to draw from.
New thinking on sustainabilityWhat the analysis suggests is that South Africa’s ballooning public-service wage bill is not sustainable. It compromises economic growth, increases inflationary risks and may even harm the country’s job creation prospects. Indeed, there is even a school of thought that suggests that despite government’s R 846bn infrastructure spending programme, unreasonable wage demands may well result in job losses.
What may be needed is a debate on whether salary negotiations should take into account other important policy considerations such as the need to link wage growth to productivity, an assessment of unit costs of government labour in relation to trends in the rest of the economy and, most importantly, an analysis of the impact of a high wage bill on employment policy. It may also be necessary – following the resolution of the current impasse – that government and the unions representing public sector workers start a conversation about how to improve the efficiency and effectiveness of the public service and its overall quality.
If our teachers and nurses, for example, are held more accountable by citizens for the level of services they deliver, our public sector will start working more efficiently. (HSRC research has pointed to the direct correlation between accountability and efficiency in the public service.) If this happens, two key sectors in the public service – health and education – may start working more optimally.
If our teachers and nurses, for example, are held more accountable by citizens for the level of services they deliver, our public sector will start working more efficiently.
A well-educated and healthy workforce augurs well for our economy and levels of productivity. A growing economy has greater labour absorbing potential, creates reserves that serve as buffers during down times, allows for increased levels of foreign direct investment, helps with inflation targeting, and reduces the deficit on the current account. From a sound economic base, the national fiscus may be better placed to support competitive public service salaries. In other words, reinvigorating the public service, and reconstituting the relationship between performance and reward, may go some way in striking a balance between the demands of workers and the imperatives of government.
Having said this, there is no gainsaying the structural defects in our economy. South Africa is in dire need of a labour-absorbing economic growth strategy. The equation is simple: the more jobs around, the greater the potential for all family members of working age to contribute to household income. This mitigates demand for excessive wage increases.
Dr Udesh Pillay, executive director, Democracy, Governance and Service Delivery research porgramme.Source: HSRC Review - Volume 8 - No. 3 - September 2010