Friday, August 27, 2010

Ballooning state wage bill ‘unsustainable’

This is a worrying trend, investors should continue to monitor this development, as this will have an impact on the future economic growth of South Africa.

Bank figures suggest salaries have been increasing by 6,5% above inflation, writes Tim Cohen

Tim Cohen

Published: 2010/08/20 06:46:21 AM

RESERVE Bank figures suggest the public sector wage bill has been increasing by 6,5% above inflation every year for the past eight years, a progression which economists suggest is unsustainable and which may be “crowding out” other longer-term investments.

The figures suggest a runaway aspect to public finances and substantially weaken the case of public sector trade unions in the current strike. They also suggest why the government is taking a harder line against strikers, as the public sector wage bill growth threatens to become unsustainable.

The figures also show the effect of the occupation-specific dispensation, which has taken total public sector salary bill increases to extraordinary levels despite an economic downturn.
At the national level, the public sector wage bill has increased by 8,4%, 11,4%, 10,1%, 9,2%, 13,1%, 12,1% and 18,7% per year between 2002 and this year . The total wage bill has increased from R140bn in 2002-03 to R322bn in 2009-10, an average increase of 10,38%.
The data, drawn from the Reserve Bank Quarterly Bulletins, do not reflect the actual increases of individual public servants since they constitute the total figure, which includes increases in the total number of public servants.

However, the bulletins also show provincial expenditure on public sector wages, which in some ways demonstrates more accurately the actual increases earned by public servants. They do so because these numbers reflect expenditure on mainly teachers and health workers, the constitutionally delegated functions of provincial government. Hence, they do not include expenditure on the wages of ancillary state institutions like the Council for Scientific and Industrial Research.

At the provincial level, the increases were between 8% and 10% until 2006-07, after which they exploded. From then , the increases were 14,9%, 21% and 17,8% in each following year.

The 21% increase in 2008-09 shows the effect of the “occupation- specific dispensation” which effectively provided a huge boost to public sector wages.

When the whole period is considered, both national and provincial figures translate into average real increases of 5,62% and 6,54% per year for the past seven years.

This longer-term data is corroborated by more recent Statistics SA (Stats SA) figures, which show the real increase per public sector worker was 10,7% in the fourth quarter of last year, on a seasonally adjusted basis.

Standard Bank economist Danelee van Dyk says the overall trend is “worrying”.

“We are dealing with a confluence of different factors.” These included affordability and the effect on the economy and investment.

While public sector wage increases per worker were about 10,7%, the most recent data suggest the same figure for private sector employees was only 0,5%.

At a time of global uncertainty, investors are seeking a good quality investment environment and the increases do not bode well for its creation, Ms van Dyk says.

On the other hand, it was clear that the public service was picking up some of the employment burden caused by the economic downturn, thereby supporting the economy.

Stats SA’s figures show the public sector increased its formal workforce by 695000 jobs since the start of the economic downswing. The average quarterly increase was about 80000 jobs compared to the previous year.

However, in the first quarter of this year, it had already declined to 42000, she says.

The public sector does indeed make a positive contribution to personal disposable income in the economy, given that it employs 27% of the workforce, she says.

A breakdown of Stats SA figures also shows that the share of total public sector employment is fast catching up to its share of gross earnings. The public sector earns about 33% of the gross earnings of formally employed people in the economy. Thus, its proportion of the total earnings pie is roughly the same as the proportional number of jobs in the sector.

However, Ms van Dyk says this is not as benign as it seems. The sectors where there is a large share of employment — for example, the wholesale and retail trade sector — had a lower share of gross earnings, suggesting that the individuals in this sector were predominantly lower paid.

This may reflect the skills bias in these sectors, and this probably explains why salaries in the financial sector were higher.

Yet most jobs in the public sector did not require highly skilled workers . “I cannot justify the fact that the public sector is earning a third of gross earnings in the economy,” she says.

Source: Business Day