Factors determining business sustainability are not the same when determining the living requirements of employees. It is wrong to confuse the sustainability of jobs and businesses with maintaining or improving the living standards of employees.
Making a living wage the focus of workplace pay negotiations indicates the failures of government at all levels to –
- provide a better life for all, and
- create an economic environment to support the survival, profitability and growth of businesses of all sizes.
South African basic living costs of employees are very high. Consider the increases in cost of amongst others food, clothing, housing, utilities, transport and education. But these should be the concern of all tiers of government and not employers.
Any minimum wages need to be fixed at levels where new entrants to the labour market can be absorbed at an affordable and sustainable cost.
Our minimum wages are determined by Ministerial Determinations for various economic sectors. The procedures are prescribed by chapter 8 of the Basic Conditions of Employment Act 1997. The process obliges the Minister of Labour to research the economic well-being of a sector, and fix the minimum wages accordingly.
A living wage is different because it focuses on the employee and depends on a wide range of factors that determine what an employee needs to earn.
Unfortunately for employees the ultimate worth of any job in the private sector is the ability of employers to pay them for work that must covered by income.
Employers can only be expected to pay employees what can be measured as a ‘fair exchange of value’ in conducting a sustainable business.
Wages fixed by collective bargaining are not meant to be minimum wages. Bargaining Councils decide the levels of pay for their sectors. The contentious issue is the extension of such pay levels to non-parties and thereby preventing job-seekers from entering the labour market.
In some Sectoral Determinations the minima for higher job levels are also specified but here are some examples of the basic minima (in Rs per hour with approximate daily rates in brackets):
- Forestry – 6.55 [R59 per day]
- Farming – 7.71 [R70 per day]
- Taxi – 8.24 [R74 per day]
- Domestic – 8.95 [R81 per day]
- Wholesale and retail – 11.68 [R105 per day].
Recently negotiations in Bargaining Councils have resulted in strikes and entry pay has been fixed at levels considerably higher than those determined by the Minister.
Some examples of entry level job (in Rs per hour with approximate daily rates in brackets) concluded by collective bargaining are
- Metal Industry – 28.34 [R227 per day]
- Public Service – 28.47 [R228 per day]
As the amounts shown above are only the direct pay levels it is necessary to add the costs of any additional employee benefits.
The basic (labour) economic principles of affordability, supply and demand and cost/benefit which should determine wage levels have long ago been sacrificed on the altars of expediency – the quest for “a settlement” being the over-riding objective. Many (if not most) BC agreements are the result of irrational compromises arising from coercion, self-interest and greed. Conspicuously absent are the principles of sound labour economics. Nowhere is this more obvious than in the realms of the public service with its alleged 34% premium relative to the private sector. An ensign to the nation?! The envy of the working class (WTMB).
There are numerous reasons for the extent of the influence exercised by non-economic forces upon the outcome of BC negotiations. An over-riding determining element however for their economic irrationality is the fact that such negotiations are invariably conducted and concluded by “socialists” and not by economists. When last did an FD materially influence the outcome of a significant wage negotiation or attend an employers’ association meeting or scrutinise the cost-benefit ratios of HR spend?
These sectoral forums, once occupied by MD’s, CEO’s and senior Line execs have either been hijacked or adopted by or abdicated to the HR/IR profession, whose knowledge of business finance is notoriously deficient. On the union side, the absence of economic savvy is appalling, drowned out by the din of the cries of “We demand! or Strike!
In feigned offence, they will be quick to excuse or explain their unconscionable conduct, claiming that they operate under/within a mandate……whether from the executive or their constituency “on the ground”. Sadly, that holds as much credence as the sex-worker professing to be helplessly controlled by her pimp.
Sector negotiations have become a gross contradiction and a paradox of monstrous proportions wreaking havoc upon the economy.
Ibsen would be aghast to view the theatre-of-the-absurd BC negotiations in RSA, with most ending in a grand finale of a Danse Macabre between the elements of economic rationale.
The inspiring spirits of co-opertiveness and mutual interest have long since vacated this sphere, leaving the combatants to indulge in the pleasures of positional bargaining with predictable results.
Since the accountability for managing employee relations has systematically been abdicated/removed by/from line management to be located within the gaming arcades of the HR/IR department, soft issues and social conscience have triumphed over the principles labour economics.
And so we move on to the next round; The oh-so-eager-to-settle, conflict-averse warm-n’-fuzzy HR/IR practitioners vs the Marxist wannabe’s, brimming with tiresome militant rhetoric, barren of (labour-economic) reason or capitalist business acumen, chanting in unison, “Aluta continua,” in their march to economic freedom.
With the scene set for the next round of negotiations what can we expect?
Will management take a stand on principle or does every principle have its price?
This is a serious comment from a source who wishes to remain anonymous and a response will be posted in the near future.
“I’ve read it as carefully as I am able and it seems to be saying that if living wages are paid businesses may not be sustainable, and so it seems to imply (since it is axiomatic it appears that businesses ought to be sustainable though I had thought that the whole free market ethos of survival of the fittest meant that a business which was not viable would cease to exist) that lower than living wages can be paid. (I think we are not here looking at what a living wage is – clearly it differs between management and worker but let’s say it is what keeps a minimum of food on the table, clothes on one’s back, shelter, education of children, provision for health, transport etc – the basics).
So if businesses may not be sustainable if people are paid a living wage does that mean that these businesses do have a right to exist even if they depend on exploitation, simply because in SA unemployment levels are such that there are always people looking for jobs? People who will work only for enough money to obtain food for themselves for one day.
The article says that ‘government has failed to provide a better life for all’ (and by implication government should have done) does it then imply that government should have provided more benefits such as a totally free, excellent education for all, health, housing, grants etc? In the next sentence it says ‘living costs of employees are high’… and …’should be the concern of all tiers of government and not of employers’. This implies state intervention in these things (subsidised food? more state grants? free housing and services?) and not the operation of the free-market which seemed to be the general tenor of the article.
Most worrying is ‘any minimum wage needs to be fixed at levels where new entrants to the labour market can be absorbed at an affordable and sustainable cost’ presumably to the employer and at cost such that the business is successful at a level of profit he deems necessary so he may (considering the low levels of education and the high unemployment) feel that R40 per day is all be can pay a worker yet nobody can support a family on that.
Surely the bottom line is that SA has probably the highest income inequality in the world (and this is socially a very unstable situation) and this can only be addressed by paying reasonable wages and not having excessive profits.
Have I misunderstood something somewhere? Surely for the continued existence of SA and of businesses it is essential that the minimum wage is such that a worker can support a family on the proceeds of his labour i.e. has at least a living wage?”
Please go to the post Key principles of income determination for a full response to the last comment.