We examine the labour market phenomenon known as the ‘wage gap’ a little more closely. We find that there are radical changes in the skills profile of many organizations. This tells us that it is a fundamentally different ballgame.
It has been reported in the media on more than one occasion in recent years that the ‘wage gap’ in SA is continuing to widen. These reports are superficially correct based on our surveys – but do not always tell the full story. For, there are a number of different economic forces at play. It may not be such bad news for the unskilled and semi-skilled workers, as we will show.
First, in defining and measuring the wage gap within a particular organization, the analyst should take care to observe one or two important principles. One of these is to measure the gap from the level of the lowest operational category of employee to the highest line management category directly overseeing those employees. If one adopts this rule consistently when conducting a comparison between two or more organizations, only then is one able to draw some meaningful conclusions.
To illustrate this, let us take a simple example, but one based on factual circumstances. In the case of a particular water board, we found by taking a snap-shot of the headcount on two different dates ten years apart that the skills profile had changed significantly during the period concerned - as follows (showing the Paterson bands):
|
Category of employee: |
June 1998 |
June 2008 |
|
Line management and senior professionals (D band) |
6 |
6 |
|
Skilled staff and specialists (C band) |
143 |
163 |
|
Semi-skilled and supervised support staff (B band) |
55 |
71 |
|
Unskilled staff (A band) |
47 |
5 |
|
Total complement: |
251 |
245 |
It was noted too that the services provided by this organization had changed radically as well during this period – so that one may have been tempted to argue that the organization was no longer the same organization and should not be compared. But, the point is that what organization has not changed? What organization is not offering more in its market – in order to survive? And, are not all government departments now more frequently being called upon to justify their annual budget allocations and deliver more?
In this factual case study, it was found that there had been an overall 36% staff turnover in the A, B and C bands during the ten-year period – surprisingly low; and a 66% staff turnover in the D band – more normal.
Notably, of the original unskilled complement of 47 employees, 37 were still in the employ of the organization, but were now all graded in the B band. Many were no longer wearing overalls. The remaining unskilled workers, numbering five, were cleaners and guards performing non-operational roles.
The significant point in this actual case study is that this organization had clearly transformed itself during this ten-year period from being an organization employing a mix of skilled and unskilled workers in the operational area to one employing skilled and semi-skilled workers only.
See now the ratios measured by our survey for the benchmark wage gap positions concerned on the table below.
|
Position: |
1999 |
2000 |
2001 |
2002 |
2003 |
2004 |
2005 |
2006 |
2007 |
2008 |
|
EGM-G4/B1 |
9.7 |
9.9 |
10.5 |
10.8 |
11.6 |
11.9 |
12.3 |
12.7 |
12.9 |
13.4 |
|
EGM-G4/A1 |
19.6 |
19.9 |
21.0 |
21.0 |
22.1 |
22.8 |
20.9 |
21.1 |
22.2 |
23.4 |
(EGM-G4 being the Executive General Manager of a G4 (intermediate size) organization and B1 and A1 respectively the operatives in these Paterson grades – for semi-skilled and unskilled respectively).
To summarize, the organization had a wage gap of 19.6 at the commencement of the period (in the bottom line left-hand column, based on the number of unskilled workers employed); but then, because of the transformation to the predominance of semi-skilled labour, 13.4 at the end (on the row above in the right-hand column).
It will immediately be apparent that a wage gap analysis is even at best not a very precise measure – since it is largely insensitive to relative changes caused by organizational development and transformation initiatives, and to the changes that occur in-between the wage extremes (which are of course important as well).
For there have indeed been fundamental changes in the profiles of the workforce of nearly every single organization in SA during the past ten years – in terms of the skills levels of all employees. These changes may have been forced on to many organizations – in some by technological advances in their sector and the need to compete globally, in others by economic factors. The Skills Development Act itself may have played either a major or a minor role in the process – yet has in either case assisted directly in facilitating the changes and putting them under the spotlight.
In overview, at the end of the day, the wage gap within any labour market is what it is - the net result of prevailing demand and supply conditions. What we are looking at on a macro-economic level is a swing away from a dependency on unskilled labour towards a dependency on skilled and semi-skilled labour – caused by the industrial revolution itself (mechanization, production lines, productivity drives, and so on). Skills in short carry a premium in the labour market.
We are therefore we think justifiably sceptical about reports which seek to draw conclusions from the wage gap analysis that the phenomenon is caused by higher and higher levels of senior executive pay. This has in the first place nothing to do with it. Second, it does not explain that there are thousands if not millions of employees in SA who have benefited in real terms from skills development during the past ten years.
We will examine the full extent of this based on our survey statistics in the next article in this series.