The annual strike season is well under way. The usual well above inflation increases are being demanded accompanied by the usual marches, highly rhythmical toi-toing and some violent intimidation of workers, less inclined to put their jobs at risk. And after losses of production and presumably also of wages, management and unions settle on still significant increases above recent inflation rates.
The season might well be called the season of further loss of permanent jobs in the formal sector of the economy. Wages and benefits improve for those who keep their jobs, while management are strongly encouraged to proceed with operating strategies that rely less and less on unskilled labour and more on capital equipment employed.
The outcomes are plain to see in the ever widening gap between output growth and formal employment growth. This has become ever more conspicuous after 1995, due to more onerous regulation of the SA labour market (for management).
The labour saving logic practised by management is sensible enough – including their willingness to concede well above inflation increases. The logic driving union action is less obvious to those outside the ranks of union leaders and presumably their generally supportive rank and file who seem to appreciate a good fight with their bosses. One might be inclined to think, given the long established employment trends, that the leaders would rather wish to encourage employment (perhaps of their sons and daughters) and so union membership and the dues they collect with less militancy and less aggressive demands for more. Clearly there is something else at work that makes union militancy, rather than co-operation, the action that keeps the union leadership in their jobs. And so the history repeats itself: higher real employment benefits, fewer formal sector jobs and productivity gains to compensate for more expensive labour.
Shareholders by contrast have no reason to be immediately concerned about these trends, unless they fear, as they may well, the instability threatened by the growing divide between those in good jobs and those increasingly excluded from gaining access to them. But this is an issue that the management of any one firm cannot address. The reality is that management teams have adopted labour saving or especially unskilled labour saving policies that have proved to be consistently profitable and can be expected to continue to be profitable.
Over recent years the share of operating surpluses in the gross value added by the SA corporate sector has if anything tended to rise while that of employees (including managers) in the form of wages in cash and kind has tended to fall. In other words operating profits have been improving despite higher wages for those who hold on to their jobs.
The share of the operating surplus in the value added by non-financial corporations in SA and their gross cash savings is shown below. As may be seen it is a much improved picture, especially in the form of cash flow generated by these firms that has no doubt added to balance sheet strength and added value for shareholders.
The issue confronting the firms, the unions and SA generally, is how these cash flows and profits should best be employed – in reducing debt, paying dividends, making acquisitions or (much more helpfully) for economic growth adding to capital equipment or workers employed.
The answer for SA is obvious enough to all – more jobs. The uncomfortable truth is that management has no good reason to alter its ways. They are reacting to the fact of economic life in SA that the real cost of capital, in the form of a lower risk premium paid by SA firms, has come down materially, given a most helpful political transformation. Over the same period their real cost of hiring labour has increased materially.
It would seem obvious to all but those who find it convenient to deny the relationship between employment levels and employment benefits. That is to say. in the interest of more formal jobs, it is the unions that need to become less militant and more co-operative with management. The unions need to promote employment by encouraging the adoption of policies that would make for a more flexible labour market and a much more mobile labour force that could adapt appropriately to the state of the economy. Maybe only an economic policy Codesa will lead to this.
To view the graphs and tables referred to in the article, see Daily Ideas in the Daily View:
Daily View 21 July