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MANAGE WAGE BILL BETTER

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In his recent medium-term budget policy statement, Finance Minister Tito Mboweni noted that the government wage bill has increased threefold over a 14-year period. Underlying this purportedly exponential growth in the salary bill is the so-called above-inflation wage increases secured by trade unions over the years, as well as a hallmark staff attraction and retention strategy called the occupation-specific dispensation, which was agreed to in 2007.


The salaries of low-paying occupations and middle management have been increasing at a nominal average rate of 8 per cent a year, while the occupation-specific dispensation has in effect widened the salary bands to improve public sector competitiveness.


It would seem from these developments that the government has been overly generous in awarding wage increases or imprudent in keeping the wage bill in check. But there is more to the compensation costs than meets the eye.


growth


Stronger growth years between 2004 and 2007 portrayed a false signal of a declining wage bill because the GDP was rising faster than compensation expenditure. When the economy eventually took a knock from the 2009 financial crisis, salaries maintained an above-inflation growth rate, and GDP growth stagnated at an annual average of 1 per cent. This created an illusion of runaway personnel costs.


There is no denying that a rising wage bill is cause for concern. Salaries tend to crowd out other important public expenditure needs essential for growth and overall socioeconomic development. More importantly, wage increases can widen the budget deficit, if not accompanied by tax revenue growth. It is for this reason that both domestic and foreign financial markets take keen interest in the size of the wage bill as a key indicator of a country’s fiscal health.


Although there is no consensus on what the optimal size of the wage bill should be, cross-country comparisons do provide a reference point. On average, personnel spending absorb nearly 20 per cent of total spending in developed countries and 30 per cent in emerging economies. With South Africa sitting at 35 per cent, the authorities are arguably justified in becoming agitated. But international comparisons can be misleading if they are not accompanied by a context-specific analysis of the push-and-pull factors underlying the wage bill and its composition.


education


The South African government has inherited a unique staffing problem that lingers to this day because of the legacy of apartheid. It received a combination of an overstaffed education personnel complement, following years of overinvestment in teacher training by the Bantustan governments and critical staff shortages in health and the police, especially in rural areas.


Post-apartheid reforms necessitated that the government rationalise salaries, introduce new staffing norms and adapt international staffing standards recommended by various world bodies. A pupil teacher ratio of 1:30 has been achieved, but reaching the World Health Organisation recommendation of one doctor for every 1 000 people remains an elusive ideal.
Ironically, doctors represent more than 50 per cent of government employees purported to be overpaid, yet disturbing stories about overworked public healthcare professionals who are leaving their profession are a common occurrence. Unfortunately, their efforts are often eclipsed by the prevalent of incidences of medical negligence and poor quality care.


This conundrum of a coexisting high wage bill and undesirable service levels or staff shortages challenges the simplistic framing of public salary spending as being bloated. The recent figures on income inequality in South Africa by the World Inequality Database - which found that 10 per cent of the population earn 65 per cent of income - are likely to place the wage bill under pressure as trade unions agitate for better income redistribution.


redistribution


The wage bill may not be appropriate as an instrument to achieve redistribution, but the government may find itself on the back foot if it approaches the negotiating table without bold proposals for greater wealth taxes. Studies indicate that workers’ share of national income has been shrinking, while profits are rising. Again, this complexity shows that the discourse about public-sector salary spending needs more nuanced reflections instead of popular labels. Without such nuanced thinking, the solutions to the problem will be feeble.


The proposals on the table to cut or freeze salaries, as well as the offer for early retirement benefits, are all commendable but will serve only to reinforce inequality and unemployment, reduce public-service levels even further and, as a result, undermine the legitimacy of the government.


The solutions for South Africa lie not so much in cutting the wage bill, but rather in investing in better human-resources management capabilities. This could include appointing the right people in the right positions at correct grades, shifting more personnel to frontline positions, exercising diligent performance management and re-emphasising labour productivity. A higher wage bill may be justified if public sector productivity grows faster than wage increases and induces overall economic growth.

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