Opinionista Xhanti Payi 28 June 2013

A 60% wage hike is not enough, but will leave us all worse off

Even if it were feasible and sustainable to award up to a 60% increase in mining wages, as the National Union of Mine Workers (NUM) is reportedly seeking, or 100%, as AMCU is demanding, it would likely still not be enough to arrive at an acceptable income level which delivers on equality and a better standard of living. Probably, most prominently, it would not calm the tensions and competition for the favour of the workers.

While there is vast literature and commentary on the desirability of wealth and income equality and redistribution – and the potential effects of inequality – very little time is spent on the manner in which this can be achieved. More importantly, and perhaps critically, there exists a deficit in the exposition of how an equal society may look like in South Africa, particularly given our history.

Although South Africa has faced an extended period of labour action and unrest over the pursuit of higher wages – and while workers’ wages have indeed increased significantly in mathematical terms – continued tensions and clashes suggests that fair wages, and shared economic prosperity and equality has not been reached, and that the real issues are more complicated than suggested. As the most prominent leader in South Africa’s labour formation, Zwelinzima Vavi, so often complains, South Africa is one of the most unequal societies in the world, and the worker still isn’t getting her fair dues. Yet the question confronting us relates to what an equal society would look like, and how much a fairly remunerated worker would earn? This means that between the state, labour and capital, there is yet no agreed picture on the constructs in industrial relations that would allow for a growing economy within which the benefits are fairly distributed and income equality achieved.

Although literature and evidence is dispersed, rising inequality arguably haunts all expanding economies. China demonstrates this picture in that, amidst the most spectacular and enduring economic expansion in recent history, inequality has risen to clock 0.47 measured by the Gini coefficient. In this regard, the 2012 OECD publication on Economic Policy Reforms asks whether the type of growth-enhancing policy reforms advocated for BRIICS (Brazil, Russia, India, Indonesia, South Africa) might have positive or negative side effects on income inequality.

But rising inequality amidst an expanding economy is almost intuitive in that because we do not all start at the same point, the speed at which we advance and the distance we travel economically will vary. If, for example, as the economy grew, we insisted that every income rise by the rate of economic growth; at the end of a ten-year period, we would find that the gap in income had widened because of the compound effect. People with higher incomes would see their after-ten-years wealth proportionally higher than those who started with lower incomes. This is simply because those with higher incomes are able to save and invest and take advantage of economic opportunities which are potentially more lucrative. Specifically, data from the recent Census of 2011 released by Stats SA demonstrates this phenomenon. The income of a black household head has increased, on average, 169% between 2001 and 2011. That of a white household head went up 88.4%. Yet, during that same period, the average income of the head of a black household moved from being 11.6% of his white counterpart, to merely 16%. Notably, the white population grew by a tenth of the pace of the black population. This means that controlled for population growth, the rate of increase in black incomes has far outpaced that of whites, but the income gap has hardly narrowed.

It should also be noted that the measures we use to define personal and social conditions, as well as progress thereof, are inadequate. What the Marikana experience has shown with the squalor in which workers live, is that while we’ve seen average wages in the mining sector rising statistically year after year, this is not sufficient. In this regard, the 2012 Stiglitz-Sen-Fitoussi Commission states that, “Quality of life depends on people’s objective conditions and capabilities. Steps should be taken to improve measures of people’s health, education, personal activities and environmental conditions. In particular, substantial effort should be devoted to developing and implementing robust, reliable measures of social connections, political voice, and insecurity that can be shown to predict life satisfaction.”

Thus defined, it should also follow that it is not through wages alone that we will be able to deliver on the promise of “shared economic prosperity” to the South African worker, especially in mining. As the Stiglitz-Sen-Fitoussi report also asserts, “the most comprehensive income concept is household disposable income that has been adjusted for publicly-provided in-kind transfers, such as public spending on education and healthcare.” This means that even a 60% increase in wages should not be enough to close the deficit that exists between what the worker earns, and what he lacks as a result of historical denial in life’s basic needs including housing, education, transport, and general services and sustenance.

The question is not whether we can establish a fair remuneration model for the mine worker in 2013 – a wage level at which the mine worker negotiates for the value of his contribution in the production and profit goals of the productive industry. It is also unlikely that we will meet the difference in earnings between the driller and the manager or even find an acceptable differential.

The 2012 OECD report on Economic Policy Reforms concludes that “education… well-designed labour market institutions, and/or progressive tax and transfer systems can all reduce income inequality.” Distinctively, the report states that while rising wages contribute to narrowing the distribution of labour income, if set too high, it may reduce employment. As many analysts and researchers in South Africa have also stated, including Professor Nicoli Natrass of the University of Cape Town, there may be a trade-off between higher wages or minimum wage, and employment.

What we need is a system in which we establish a wage level that compensates the worker for his contribution in the production process and the pursuit of profit, and a social income which allows him a decent and acceptable standard of living. The first one can be achieved by educating her about the nuances of industry and increasing her productivity. The second one relies on the state providing the basic services which allow her a decent education for her children, adequate health services, an efficient and economical transport system, and other basic services which represent the full income of a citizen in democratic states, and is indeed necessary in the description of income redistribution in modern societies.  A 60% to 100% wage increase has the potential to merely raise costs of production and lead to decreased employment, growth and in the end a worse social outcome.

But one gets the nagging feeling that wage demands from unions don’t reflect economic imperatives as they are political and power ones. In that struggle, the gap will widen and the base will fall. DM


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Note from the Editor

Democracy in Africa? What democracy in Africa?

By Branko Brkic

"Let no-one enter here who is ignorant of mathematics" ~ Plato