Wage Determination in South Africa: What Do We Know?

Introduction

Wages play an important role in the broader economy from both efficiency and equity perspectives. This article considers the state of knowledge on wage determination in South Africa. It asks the following questions:

• • Is wage setting appropriate for South Africa's development needs? Are wages determined in alignment with employment and growth needs to achieve full employment? Do they underpin incomes (for labour replacement)? Are they responsive to industrial competitiveness requirements?

• • Are wages set within a competitive framework? What constrains competition in the labour market? How important are racial and gender discrimination? What impact do high skill wage increases have on economic growth? What impact would competition have?

• • What are the roles of institutions such as unions and bargaining councils, and of minimum wages, on efficiency and equity?

Figure 1 outlines factors that can impact on wage determination. This starts from 'supply-side factors' such as access to education, networks, transport or workers' general health. The demand for labour, and therefore wage levels, can be affected by industrial structure, general growth conditions and the behaviour of firms in their human resources practices. These supply and demand conditions are mediated by market institutions providing bargaining, regulation, networks, and information.

Some flexibility to market conditions is often sought. However, flexibility is a term that is often misused. Most commonly, it refers to contract flexibility, or the ability to hire and fire. This should enable firms to adjust to changing market conditions. But flexibility or rigidity could also refer to entrenched non-competing labour market segments. Patterns of wage determination may be segmented by occupation, industry, geographical area, gender or race. These can be important sources of inflexibility and have serious cost and efficiency implications.

This article is structured as follows: the first section reviews general wage trends, and the distribution of wages. The second section considers explanations for wage trends attributed to economic structure. The third section reviews the impacts of unions and minimum wages on overall wages and equity. The final section looks at the evidence of racial and gender discrimination.

Figure 1.

Factors impacting on wage determination.

Overview of wage trends

General wage trends

Wage trends differed dramatically over the 1970s, 1980s and 1990s, as would be expected over a period of structural change, greatly varying rates of economic growth and political change.

The distribution of value added between wages and employment growth will greatly impact on efficiency and equity outcomes. In the 1970s, there was rapid annual growth in real wages in mining (10.8 per cent), manufacturing (2.5 per cent) and agriculture (2.6 per cent). This exceptional growth in wages trailed behind that in real value added in agriculture and manufacturing. In services, real wages were relatively stagnant (0.2 per cent per annum), despite rapid growth in value added by about 3 per cent per annum (Mazumdar and van Seventer 2002). Mazumdar and van Seventer (2002:17) find that the 'tradeable sector divided the increase in output almost equally between real wage growth and employment increase'. Mining in particular benefited from output price increases, enabling higher wages in a context of stagnant output and slow employment growth. In contrast, expansions of output in the services sector contributed mainly to employment growth and not to wage increases.

The experience was very different in the 1980s. Real wage growth in the 1980s was generally very low, and mostly trailed growth in value added.

According to Mazumdar and van Seventer (2002), the 1990s were marked by a re-emergence of wage growth, generally outstripping that in value added. The divergence was much more marked for mining and light industry than it was for services sectors. This was the case in both traded and non-traded sectors, although it is still more marked for the former. This means the fruits of any output growth would have favoured wages over employment. The context is one of fairly slow growth in value added over the 1990s, so rapid employment creation would not be expected. Real wage growth would need explanation in this context.

Mazumdar and van...