The Cost of the Wage War

THE COST OF THE WAGE WAR

With the economy taking repeated body blows as one industry after another enters into damaging strikes, a step back is required to examine the broader effect of these disruptions on the nation – and the workforce – in a country where unemployment is at alarmingly high levels. That’s according to Ettiene Retief, chair of the tax committee at the South African Institute of Professional Accountants, who says that while the aspiration of workers to earn a living wage is quite reasonable, there are other factors at play which cannot be ignored. These include the global nature of business which demands competitiveness, the rate of inflation and the reality that investors have options and will exercise them.

“Specifically, when wage increases of well above the inflation rate are demanded, we have to sit up and take notice. Labour cost is a major input across most products and services and if that cost escalates dramatically, affordability is threatened,” Retief points out.

While noting that labour law should not allow employers to take advantage of employees, he believes that bias labour law is an obstacle for economic growth and foreign direct investment. “Demanding wage increases that are substantially above inflation, but which come with no corresponding increases in productivity, will have an impact on the sustainability of South African businesses,” he points out.

Balance is what is required, Retief says. “Workers should be entitled to a reasonable wage, absolutely. However, if employment costs grow disproportionately, business will be forced to cut jobs, close their doors, or even shift part of its manufacturing off-shore.”

There is ample evidence of such consequences to be seen around the world; the de-industrialisation of the United Kingdom and the United States are cases in point, where manufacturing shifted East when worker demands outweighed economic feasibility. The result was the closure of factories and even entire industries as other nations could produce better goods at lower cost.

“It has to be recognised that in the globalised environment which characterises business today, it is not sustainable to keep giving substantial double-digit increases. Often businesses are criticised for making profits in motivation of the wage demands, but the profits is crucial to entice shareholder investment, which is the capital required to operate the business,” Retief continues.

When considering the red-tape and abundance of governing legislation that companies are faced with, economic climate, ongoing increase in costs, and regular business disrupting strikes, why would foreigners invest in South African business? “There is no shortage of opportunities for investors to explore. As a nation, we have to compete for their attention and once we have it, it is best retained. Also, the business operation in South Africa contribute towards to tax base, which will form a crucial part of government initiatives such as National Health Insurance.”

It is a case of seeking sensible and reasonable solutions, Retief says. “You can’t have your bread buttered on both sides. We should all align with the objective set by the Minister of Finance to address the high unemployment rate we face in South Africa at present. All obstacles in achieving a significantly reduced unemployment rate should be addressed. Merely seeking an unsustainable regular rally for above inflation wage increases places yet another obstacle in the way of reducing the unemployment rate.”

While hesitating to say a change in labour law is required, he does believe less employer-friendly laws create hurdles in the ability for industry to create jobs and attract foreign investment. “We need to stop playing a ‘blame game’, to rather look forward, unite and create organisations with solid investment, sound employee relations and which will yield strong revenues which can go towards sustainable economic growth,” Retief says.

More than anything, he believes South Africans should together be making a plan to fix things, rather than focusing on the problems. “Our goal should be to foster and encourage employment, rather than striking and causing chaos towards short-term goals. SAIPA is calling on all parties to consider the bigger picture view and think long term; the opportunities are there, investors are looking to emerging economies such as our own, but they will pass South Africa by if they see instability and volatility. Our aim should be job creation and sustainable employment, not just short term wage increases – and that’s something business owners and employees alike should bear in mind in their negotiations.”

About SAIPA (South African Institute of Professional Accountants)

SAIPA (http://www.saipa.co.za) is a professional accounting institute with around 7000 members (excluding students and associates) in practice, commerce and industry, government and academia. The majority of its members are in public practice, offering accountancy and allied services, excluding auditing, to the general public and the business community, especially in the SME sector. SAIPA is a full member of IFAC (http://www.ifac.org/) which is a global organisation for the accountancy profession.