It is not all bad news!

It is not all bad news!

We surmise that standards of living by the criterion of take-home pay have doubled during the past fifteen years for a high percentage of the population.

In the previous article in this series, we looked at the ‘wage gap’ phenomenon in SA. We pointed out that there have been fundamental structural changes in many organizations as a result of skills development off-setting the economic effect of a perceived ever-widening wage gap.

What about the individual employee however who has not benefited directly from any skills development programme during the past ten or fifteen years?

Let us take two typical benchmark positions to start and study their pay levels over the past fifteen years. In the graph below (Exhibit 1) we show the ‘total cost of employment’ (inclusive of variable pay) of a plant manager (Paterson D3) and an artisan (C2) as adjusted for the movement in the CPI – thus in 2009 Rands.

The following will be noted:

One – the pay gap has widened significantly (from 2.5 to 3.1).

Two – the real increase in pay differs too (at 61% and 27% respectively).

Does this mean that the standard of living of these employees has risen by these significant percentages (yes - by 61% in the case of the senior manager!)? The answer is almost certainly yes.

It is true that, against this, there may have been an element of ‘bracket creep’ in terms of income tax which may erode the figures – but consider too that the prices of many consumer products and services have reduced in real terms over this period as well.

Let us next conduct a similar study in relation to positions higher up the ladder – taking a senior executive position (a technical director graded E1) as compared to a middle manager (say a plant manager graded D3). See Exhibit 2 below.

Here again –

One – the pay gap has widened (from 1.2 to 1.5).

Two – the real increases are 97% and 61%.

Interpretations

These trends are incidentally remarkably similar across all of the sectors based on roughly 550 positions that we monitor and track every year in our general surveys over the same fifteen year period – higher real increases for managers over their subordinates. Real pay has escalated for all employees in the formal sector by percentages in the range of from 25% to 100%.

Can one physically see this escalation in standards of living? There are certainly more previously-disadvantaged people driving motor vehicles, owning their own homes, shopping in the main shopping centres, as compared to fifteen years ago. That is immediately apparent.

What about the informal sector? There will inevitably have been a beneficial spin-off to the informal sector, which feeds off the formal sector to a large extent – so probably directly proportional to the average applying to the formal sector. Here, new job creation remains the ultimate first prize and macro-economic goal for the large body of unemployed in SA. But there have been better pickings certainly.

If as a result of skills development initiatives and other factors the average skill levels have risen across the economy during the past fifteen years, as we showed in the previous article, then standards of living will obviously be even higher than the percentages which are reflected above on a position by position comparison.

Whilst standards of living have probably escalated in some other developed countries as well during these years, what is truly significant in our opinion is that it has been achieved in SA concurrently with a massive social revolution. During this time the previously-disadvantaged have taken over in government, and been invited into a high proportion of the medium and large organizations as partners, with only beneficial results.

That there have been some problems precipitated by the change is not surprising. This one should with hindsight have expected. That the newly-appointed leaders make some mistakes is likewise natural in the context of the risks of change on the scale that has occurred.

We as a nation have nevertheless come through this with this major achievement – that our industries are no longer dominated by and dependent on unskilled labour. They are accordingly more robust in relation to global competitors. This portends too as a general proposition that we now have a better platform on which to grow in the future.