The Governor of the Reserve Bank worries that salaries are rising faster than inflation and that there could be a pay-price spiral with the potential to exacerbate the high level of unemployment in South Africa. The pay-price ratio is a metric that the Employment Conditions Commission should be monitoring annually by region, industry and where necessary by product range. This will inform and equip the Minister of Labour with the information needed when considering LRA s 32 extensions of bargaining council agreements and fixing sectoral determinations. The pay-price ratio is part of the overall ‘value exchange’ measurement process.
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UPDATE: Repo rate remains unchanged
“Concerted action is needed on the part of all the parties involved. We need cohesion of policy and decision making to provide the necessary certainty for sustainable, economic growth.”
Marcus said the bank was worried salaries may be rising more quickly than inflation.
Eskom hike for salary increases: report
Johannesburg – One of the reasons Eskom is applying for an electricity hike is because the average annual salary of one of its employees is expected to be R820,000 in 2017 and 2018, according to a report on Saturday.
Narrowing the farmer-worker gap
Labour unrest in the agricultural sector and farm worker demands for R150 a day have raised a contradiction: the Bureau for Food and Agricultural Policy was requested by representative bodies to investigate the feasibility of the R150 a day wage demand.
Their recently released report contains two key findings. Firstly, many farms would become unprofitable if required to pay the R150 a day minimum. Secondly, even if workers did receive the R150 a day wage, they would probably still be unable to afford a nutritious basket of food.
Previous posts
Spare a thought for trade union ‘managers’
Like any other business trade unions also have problems managing their ‘businesses’ and ensuring they remain solvent. Trade unions may demand wage adjustments linked to the rise in inflation for their members.
Minimum and average daily wages – Solms-Delta
Craig MacGillivray, the chief executive of Solms-Delta, wrote a letter to the Mail & Guardian on 14 December in response to a report by Glynnis Underhill published on 7 December. He correctly points out that there are appropriate income differentials between employees doing different types of work. In effect he pointed out that there is a proper value exchange taking place.
Key principles of income determination
Government must support employees who need a helping hand to climb onto the employment ladder and to take the first few steps up the ladder. Government does this by providing basic living costs that are as low as possible. Such support from government ensures job creation. This is what is meant by a ‘minimum wage’, or more correctly an ‘entry-level’ wage.
Thereafter as employees climb the ladder they will be able to support themselves by being rewarded through a process of ‘value exchange’ with private employers. This is where the debate over a ‘living wage’ is relevant.
Minimum wages are not meant to be living wages
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.
Thanks to Wikipedia here is the entry relating to the price/wage spiral
“In macroeconomics, the price/wage spiral (also called the wage/price spiral) represents a vicious circle process in which different sides of the wage bargain try to keep up with inflation to protect real incomes. Thus, this process is one possible result of inflation. It can start either due to high aggregate demand combined with near full employment[1] or due to supply shocks, such as an oil price hike. There are two separate elements of this spiral that coexist and interact:
Business owners raise prices to protect profit margins from rising costs, including nominal wage costs, and to keep the real value of profit margins from falling.
Wage-earners try to push their nominal after-tax wages upward to catch up with rising prices, to prevent real wages from falling. To maintain purchasing power equal to the rising costs reflected by a consumer price index (CPI), a taxable salary must increase faster than the CPI itself to result in an after-tax wage increase comparable to the increased cost of goods and services – unless tax brackets are indexed.
So “wages chase prices and prices chase wages,” persisting even in the face of a (mild) recession. This price/wage spiral interacts with inflationary expectations to produce long-lived inflationary process. Some argue that incomes policies or a severe recession is needed to stop the spiral.
The first element of the price/wage spiral does not apply if markets are relatively competitive.
The spiral is also weakened if labor productivity rises at a quick rate. Rising labor productivity (the amount workers produce per hour) compensates employers for higher wages costs while allowing employees to receive rising real wages, while allowing the company’s margin to stay the same.”