Demands for big wage hikes could stop job creation

Reported on: 25 March 2010

Wage demands this year could be tempered by lower inflation and the heavy job losses of last year, but if unrealistic wage hikes are pursued it could damage the job market further.

This comes as unions project demands of wage increases of up to 17 percent, which they attribute to high electricity prices and petrol price hikes.
Lesiba Seshoka, the spokesman for the Cosatu- affiliated National Union of Mineworkers (NUM), said with high energy prices, inflation for workers was very high. "I don't foresee wage demands below 15 percent," he said.

Loane Sharp, a labour market analyst at staffing company Adcorp, said yesterday: "It took us 10 years to create 2.2 million jobs and nine months last year to lose 45 percent of them. We now have a five-year slog to create these jobs."
Sharp said the reason there were such heavy jobs losses last year - in what was a mild recession and based on historical trends should have only resulted in about 285 000 jobs lost - was the unreasonable wage demands in the middle of a downturn and intense pressure
for a huge conversion of the workforce from temporary to permanent staff.
The average wage increase last year was 9.3 percent, compared with average annual consumer inflation of 7.1 percent. In 2008 the average settlement was 9.8 percent as inflation touched double digits.
Sharp said wages used to track inflation very closely, but in the last five years there had been a complete break with this trend. Wages now ran between 1.5 and 2 percentage points above inflation.

"That is why we lost almost a million jobs. The higher the cost of labour, the lower the employment. Companies in all sectors find ways to substitute labour if the cost becomes unrealistic," Sharp said.

Patrick Craven, the spokesman for Cosatu, could not be reached for comment yesterday, but earlier this week he said the heavy job losses explained why Cosatu was campaigning against casualisation as it was far easier to lay off temporary staff.

But Sharp said companies that employed permanent staff had little flexibility if business conditions deteriorated, such as putting staff on short time, and the only option was to retrench. With temporary staff there was more flexibility.
Sharp said the number of temporary, atypical and contract workers grew 4.3 percent to 3.3 million last year, based on National Skills Fund data.
Despite the risks to jobs, unions seem to be gearing up for high wage demands. The Federation of Unions of SA has advised its affiliated unions to ask for hikes of 17 percent.

Last year wage settlements negotiated by NUM were between 8 percent and 10 percent. Construction workers, who embarked on a massive strike, secured 12 percent. Negotiations in this sector begin in May.

Some settlements so far this year have been more moderate as consumer inflation, which fell to 5.7 percent last month, heads lower. The Food and Allied Workers Union recently settled for a 7.8 percent hike. Solidarity recently reached an agreement with Netcare for an 8.5 percent wage increase and with Necsa for 7 percent. The Grain Bargaining Council wage deals are between 7.5 percent and 8 percent.