WAGE INCREASE A BITTER PILL FOR SA
By caving in to public sector unions’ demands, the government will feed the downward spiral in which wages crowd out resources for everything else. As growth slows and South Africa’s debt position worsens, it will regret the precedent it has set
The damaging nurses strike may be over but the implications for the fiscus and service delivery will reverberate for years.
Last week, the government reportedly upped its wage offer for the coming year from 4.7% to 7% and is prepared to revisit the below-inflation 2022/2023 increase.
At issue is whether it has been too hasty in caving to public sector unions, especially given the conduct of the National Education, Health & Allied Workers Union (Nehawu), which health minister Joe Phaahla has blamed for the deaths of four patients during the recent violent and illegal strike.
In its judgment interdicting Nehawu’s strike last week, the labour appeal court lambasted the union’s “flagrant disregard” for the law, the employer, and the people of South Africa who are entitled to access essential public services.
It described Newahu’s conduct as “deplorable” in issuing a strike notice that was “intentionally broad and reckless”, knowing the strike was impermissible for hundreds of thousands of its members who are classified as essential workers, but then failing to clarify what measures it would take (if any) to ensure these individuals did not join the strike.
Nonetheless, the union’s strategy worked. The battle was over almost before it began and Nehawu, by sowing chaos in the health sector, has emerged the victor though its reputation may be in tatters.
But from the union’s perspective, it is the victim. It characterises its members’ relationship with the employer as abusive and labels the government’s conduct “brutal” and “arrogant”.
It has consistently demanded 10% wage increases for 2022/2023 and 2023/2024, having been stung by the government’s unilateral implementation of a 3% increase last year when consumer price inflation (CPI) was double that.
The union says the reasons for the strike included the implementation of austerity measures, collapsed wage negotiations and the employer’s “aggressive attack on collective bargaining”. By this it means the government’s failure to honour the final year of the previous three-year wage agreement and the unilateral imposition of last year’s increase.
“This collapse has really brought [a] new escalation of miseries, pains and suffocations that threaten [the] historic gains and meagre livelihoods [of] public service workers and their families,” says Nehawu in a statement.
But the notion that health-care workers are underpaid doesn’t stand up to scrutiny: on average, public sector nurses earn more than R34,000 a month before taxes. This places them ahead of police on R33,000 but below public sector social workers, who earn about R35,000 and public sector teachers on R37,500 (see table).
According to a fiscal paper released last year by Wits University adjunct professor Michael Sachs and researchers Arabo Ewinyu and Olwethu Shedi, public sector workers in the community, personal and social services sector (including nurses) earn a slight premium over their private sector counterparts on average (see graph).
The premium was as wide as 30% in 2009, according to Stats SA’s “Quarterly Employment Survey”. This was a direct result of the government’s introduction in 2007 of the occupational specific dispensation, which was meant to stem a brain drain of nurses and other skilled workers overseas and to the private sector.
It resulted in average public sector pay increasing at an annual rate of 15% (in nominal terms) between 2008 and 2010 more than double the CPI rate at the time.
This moderated from 2012 to 2019:
public sector wages rose 2.2% faster than CPI on average over this period compared with CPI plus 3.5% for the average private sector social services worker, and CPI plus 1.7% across the private formal sector as a whole.
In fact, in the past two years, the government’s average payroll growth has slowed faster than the earnings growth of formal private sector community and social services workers.
This is not to say the public-private sector wage premium has been entirely eliminated. Due to large unions’ bargaining power, the public sector remains the “price maker” in the market for nurses and the private sector remains the “price taker”. So wage increases for nurses in the private sector take their cue from those awarded by the government.
Nevertheless, according to the Wits researchers, the premium has fallen considerably over the past decade to the point where public and private sector wages in the community, personal and social services sector have almost reached parity (see graph).
So, if public sector nurses are being paid slightly more than, or much the same as, their private sector counterparts, why are they aggrieved to the point of wilfully endangering patients’ lives by striking en masse?
The answer may lie in the rapid increase in the cost of living, as well as the number of dependants many workers support. The difficult, often deplorable, working conditions in public hospitals may also be a factor.
Over the past decade of slowing growth and rising debt, the urgent need for fiscal consolidation has forced a trade-off between wage increases for nurses, teachers and police (who make up more than 85% of government employees) and everything else in their departmental budgets a trade-off the unions have invariably won.
Each year, until recently, the cabinet has typically approved generous annual wage increases for public servants, far above the National Treasury’s tight compensation ceilings, forcing provinces and national departments to do the only thing they could reduce headcounts and reallocate resources away from goods, services, capital and maintenance towards compensation.
In education, this has meant fewer textbooks and a decline in real spending per pupil; in health care, it has meant less money to maintain hospitals.
According to the 2023 national budget, almost 63% of the health budget will go on wages over the medium term, compared to 30% on goods and services, 3% on buildings and fixed structures, and 2% on machinery and equipment.
The government’s sweetened salary offer will shift the balance further towards wages and implies that more cuts may be needed to the number of nurses, teachers and police officers, on top of the significant downsizing these departments have endured in recent years.
Says Sachs: “It amounts to allowing those that have the loudest voice (labour unions) to keep on protecting their interests while those with the least agency (poor communities), the users of public services, suffer.”
But it also places an increasing burden on the fewer, but better-paid, workers who have remained as personnel numbers have stagnated and fallen relative to the size of the population served.
Sachs expects this pattern to continue as unions dig in their heels against the Treasury’s dogged pursuit of fiscal consolidation. The situation is aggravated when the government, at the level of the presidency, buckles in the face of industrial unrest as it did last week.
“This is a political decision, it is not up to the department of public service & administration or the Treasury,” says
Sachs. “Whatever the centre decides, everyone will have to follow. If there is no centre, the budget will say one thing and the reality will be somewhere slightly different.”
The Treasury declined to comment for this story, saying it would be “premature” as the wage negotiations are continuing.
The likely upshot for the fiscus is that the government will continue to evade its own planned fiscal consolidation by adding more resources to compensation budgets each year after the February budget has been tabled.
Peter Attard Montalto, Intellidex’s head of capital markets research, estimates that the government’s latest offer of 7% in 2023/2024, followed by CPI plus 0.5% in year two and CPI plus 0% in year three would add R7bn, R12bn and R14bn to the next three years of the budget framework.
This implies total fiscal slippage of R33bn over the medium term, which he feels is “not as bad as it looks” and less than Intellidex and many other economists had privately pencilled in.
Not even the Treasury expected to hold the country’s R700bn compensation bill down to the 3.3% average annual growth rate it budgeted for in February, explaining on budget day that this belowinflation escalation was to avoid preempting the wage negotiations.
In any event, most of the unions have reportedly rejected the government’s sweetened offer, though some have dropped their 10% wage demand to 8% so the parties are, at least, drawing closer together.
While it may have been possible during the commodity boom of the past few years for the government to remedy some of the erosion in social spending and incur some slippage on the wage bill, as South Africa’s growth outlook darkens and the debt position worsens, it will regret the precedent it has set this past week by caving in to the unions.