Decline in salaries threatens economic recovery
November 10, 2009
By SAMANTHA ENSLIN-PAYNE
Declining wages in many countries in the first half of this year following a sharp drop last year has sparked concern of insufficient demand in the global economy to underpin a recovery.
"The continued deterioration of real wages worldwide raises serious questions about the true extent of an economic recovery, especially if government rescue packages are phased out too early," Manuela Tomei, the director of the International Labour Organisation's (ILO's) Conditions of Work and Employment Programme and lead author of Global Wage Report, said yesterday. "Wage deflation deprives national economies of much needed demand and seriously affects confidence."
Based on a sample of 53 countries, it appears that growth in average wages fell from 4.3 percent in 2007 to 1.4 percent last year.
Overall, while a number of countries had declining but positive wage growth last year, more than a quarter of them experienced flat or falling monthly wages in real terms. This included South Africa, where wages fell 0.3 percent.
Based on data from 35 countries, the ILO said wages were likely to get worse this year, despite the beginning of a possible recovery.
But the Reserve Bank's 2008/09 annual report says nominal wage growth in the first half of the year based on the average wage settlements in collective bargaining was 9.7 percent. This is based on the Wage Settlement Survey compiled by Andrew Levy Employment Publications and corroborates Statistics SA data.
Taking into account consumer inflation, which for the first half of this year averaged about 8 percent, then wages in South Africa have grown in real terms this year.
For the first nine months of this year nominal wages increases averaged 9.4 percent, while consumer inflation in September was 6.1 percent.
In 2007 wage settlements averaged 7.3 percent while annual inflation averaged 7.2 percent.
Last year wages rose an average 9.8 percent when inflation was an average of 11.5 percent.
Solidarity spokesman Jaco Kleynhans said above-inflation wage increases were not a bad thing as they led to greater consumer spending.
He said the above-inflation increases this year were due to the fact that wage negotiations began earlier, when inflation was still high.
Wages were negotiated on the living expenses of workers in the preceding 12 months.
"We as unions need to remember that we will not get as high increases next year if inflation stays around 6 percent," Kleynhans said.
Chief economist at Economists.co.za Mike Schussler said demand was fading due to increased unemployment.
"People who have kept their jobs are doing well," he said. "People who have not are doing poorly."
With almost 1 million jobs lost since January, high wage increases meant that it would take longer to create new jobs, he added.
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