adminIt is clear that in most companies real rises in pay will require real gains in productivity. If a company’s costing means that no more than, say, 30 percent of total costs can be staff costs then a pay rise requires that there is something more to take that 30 percent from.
This is straight forward economics. In many parts of the world the recession has seen salaries freeze since businesses are not growing; this means that with even minute inflation real incomes are falling. This has been accepted by those workers as a temporary measure until growth resumes.
In much of Asia incomes are still rising, but that is because economies and the companies that form those economies are still growing.
In Zimbabwe growth is slow, at least outside the mining sector. So, as far as economics are concerned, rises in salaries will also be slow.
The years of inflation, and inflation was high even before the hyperinflation hit at the end of the 1990s, saw people expect and get substantial pay rises several times a year.
In fact, as most people now realise, they are a lot better off with very low inflation, rather than monthly pay rises that do not even keep pace with inflation. But there are still those residual expectations.
A second problem that few notice is that Zimbabwe’s economy has largely been built on the basis of intensive use of fairly low cost labour. This has allowed very limited capital to go a lot further, and is common in most developing countries.
Indeed China moved into second place in the world, and has become the world’s largest manufacturer, by undercutting labour costs used in other industrial countries, although places like Vietnam and Bangladesh are undercutting China and taking over the lead in labour intensive industries like textiles.
But it does mean that Zimbabwe’s wage levels cannot be compared to those in developing countries, or even to those in middle income countries like South Africa.
Many of Zimbabwe’s more successful businesses could push up wages over a few years with capital injections and massive redundancies. Such a move would share the cash for “labour costs” among far fewer
people, allowing far higher pay along with serious unemployment.
But employees also need to eat. Most unions and workers committees are pushing for minimum wages based on the poverty datum line, which is the minimum required for a family of five.
Of course few on the minimum wage are supporting a family of five. Most are young people without a family and most people are well off the minimum for their industry once they do have children to support. Even then having both parents working is now the norm, a return to Zimbabwe’s cultural practices rather than the imported “colonial madam” loafing all day.
But even with those provisos, it is clear that many salaries are still too low. There is a good ethical argument, rather than an economic argument, for a rise in real incomes.
A second ethical argument put forward by unions is the salary differentials between the top and the bottom of salary scales. The unions tend to stress the gap between gross pay of CEOs and the minimum wage for an industry.
But even when the taxes that CEOs must pay are taken into account, which do narrow the gap a lot, the gap is still large. But, as we have pointed out, the real gap is between unskilled and skilled labour. In almost any business the skilled workers earn several times the minimum wage for unskilled colleagues.
There are reasons for this. Skilled wages tend to be closer to those in the region, simply because skilled labour is in shorter supply and is potentially more mobile. Even in the present global economy, young skilled people can still migrate.
And in Zimbabwe the unemployment rate for skilled people is low. We are short of many skills.
But while all this explains the steep inequalities, there is still a good ethical argument that they should be narrowed, probably by pushing up minimum wages faster than skilled and managerial salaries are rising.
But in many negotiations there is an effort by unions to retain the existing percentage gaps between skills grades while pushing up the minimum wage. A more sensible approach would be to narrow differentials
while pushing up minimums, with the proviso that everyone gets something.
In some industries this has been done through absolute allowances or pay rises. Giving everyone an extra US$50 month, in take home pay, does push up all salary scales, but the percentage rises are far higher at the bottom.
But these sort of solutions can only work as part of a general agreement on growing a business. Nothing extra can be extracted from a static or declining business and in the end real rises in income depend on higher productivity and higher levels of skills. Economics, unfortunately, trump ethics in the business world.
Online Reporter