Wage inequality part of the jobs problem
Depending on who you talk to, last week’s presidential jobs summit presented an opportunity for critical reflection and action on SA’s jobs challenge or it was just another talk-shop.
Brazilian philosopher Paulo Freire emphasises the importance of determined reflection and how genuine dialogue informs that action: “Critical reflection is also action.”
Critical reflection requires us to confront the structure of our economy, which is as much informed by corporate strategy and structural change in key sectors and industries as it is by policy. It is also informed by patterns of labour demand and intracompany wage inequality rather than, as some have suggested, the inflexibility of our labour market.
What does wage inequality have to do with jobs, you might ask. The SA jobs challenge is not only about piecemeal and disparate supply-side interventions such as jobs matching, provision of soft skills and retraining. This assumes that the challenge rests with the absence of skilled and attuned workers to fill vacancies in sectors that absorb larger numbers of skilled workers.
But that isn’t the problem we have; rather we are faced in the short term with the challenge of increasing employment in those sectors whose skill needs correspond with the crisis of underemployment among those who are semi- and unskilled.
The three sectors that employ most people, according to Stats SA’s Labour Force Survey for the second quarter of 2018, are trade, finance and other business services and community and social services (which includes government services). The latter is the largest employer at 3.69-million South Africans. In relation to the challenge of unemployed semiand unskilled labour, the sectoral absorption of these workers relative to those with skills is lower than, say, in agriculture and trade.
As shown in the national income dynamics study, highskill jobs fetch nearly five times the average wage of low-skill jobs, although skilled jobs absorb less than a fifth of the working-age population.
Wages in sectors with relatively low absorption of skilled labour are in the main much lower than those in sectors with a greater demand for skilled labour. For instance, wages in farm work and domestic work are much lower than those in the financial services and community, social and protection services.
Put differently, interventions should consider how policy, our national system of innovation and corporate strategies can ensure greater labour absorption in agriculture, manufacturing, construction, trade and domestic work, by ensuring that the demand for output produced in these sectors continues to rise.
One way of unlocking such demand is through the equalisation of pay structures across the economy, alongside supportive industrial and trade policy, to secure demand.
After community services and government, the trade sector (which includes retail) is the largest employer at 3.2million. After the agricultural and domestic work sectors, the trade sector is the largest employer of those with no skills, yet its work is characterised by widespread casualisation and precariousness as well as unequal pay structures.
One of the interventions required to ensure job growth in sectors that absorb those without skill is to confront wage inequality and excessive executive pay.
To do this, it is important to not only regulate low pay through minimum wages, but also to regulate pay ratios and where necessary implement wage ceilings.
Corporations and the public sector have tools at their disposal to ensure that regulation of excessive pay not only equalises pay within firms but also, through demand channels, boosts production and employment in those sectors that employ those with limited or no skills.
● Cawe (@aycawe), a development economist, is MD of Xesibe Holdings and hosts Power Business on Power FM.