Recently the payslip of a Pick n Pay employee with a gross monthly pay of R3 566,19 was shared across social media platforms prompting not only a payslip challenge on Twitter, but more seriously, eliciting outrage and calls for labour unions to step in and help low-wage retail employees get higher wages.

This reaction is understandable in a country which has the highest levels of inequality in the world and a country in which the media never misses an opportunity to publish details about the difference between executive and worker pay. 

This outrage, however understandable, does mask specific structural problems within our economy that will not be solved by the politics of envy or more union involvement in the market. 

Pay the executives less and give more to workers?

What is often highlighted in these instances is the glaring pay gap between executives and ordinary workers. For the year end 2021, total executive remuneration for the Pick n Pay group was almost R69 million and when non-executive director remuneration is factored in, this rises to about R80 million. Pick n Pay Group has over 85 000 employees. While resentment at the eye-watering salaries of executives is understandable, the maths simply does not compute. Even if the entire executive remuneration package of the Pick n Pay group was redistributed to workers, this would be a yearly salary gain of R941 or a R78,41 per month increase.

More importantly, South Africa already has a dearth of executive talent and cutting executive pay in order to satisfy an understandable but ultimately fruitless and misguided anger towards executive pay is a non-starter.

Labour market value and labour market mobility

An often overlooked aspect of low wages in South Africa is that workers do not have much labour market mobility or job choice and so employers naturally have the upper hand when negotiating pay. Workers don’t have many options, and this can be traced to both the ineffectiveness of government policy in creating an environment that encourages investment, especially foreign direct investment, and so creating an economy of opportunity and plentiful jobs. The government’s often onerous and sometimes senseless regulations on small businesses also stunt business formation and job creation. 

In other words, workers would have more leeway to bargain for higher wages in an economy where they can easily find another job if employers cannot match their expectations. It is this scenario of employers and employees negotiating the best possible price for labour that produces the most efficient and effective market outcomes.

Unions and trade-offs

This is precisely why calls for union intervention in this regard would only serve to exacerbate the structural problems in our economy which lead to labour market inefficiency (higher unemployment). Unions in South Africa are very good at securing higher pay for their own members, but the trade-offs of bargaining councils and artificially-imposed labour restrictions and pay are that this locks young low-skilled workers out of the job market. Young low-skilled workers are the majority of the labour market in South Africa.

Those who want trade union intervention ultimately must pick their poison in either the form of higher unemployment or higher prices on consumers, which in the current climate of sky-high inflation, rising petrol prices and wage stagnation for the middle class especially will most likely be a deeply unpopular trade-off.

Why foreign direct investment matters

The IMF defines Foreign Direct Investment (FDI) as cross-border investment associated with a resident in one economy having a significant degree of influence on the management of an enterprise in another economy. 

This is important to note because the overall benefits of FDI for developing countries’ economies are well documented. Given appropriate host-country policies and a basic level of development, a majority of studies show that FDI triggers technology spillovers, assists human capital formation, contributes to international trade integration, helps create a more competitive business environment, and enhances enterprise development. All of these contribute to higher economic growth, which is the most potent tool for alleviating poverty in developing countries.

South Africa’s FDI inflows are tanking despite the numerous promises of renewal and structural reform from within the Presidency and from the President himself. Foreign direct investment in South Africa fell by 39% to $3.1-billion in 2020, according to the latest data from the United Nations Conference on Trade and Development. Data from the Reserve Bank in June 2021 showed FDI inflows slipped to R6.1-billion in the first quarter of 2021 from R16-billion in the fourth quarter of 2020. For the whole of 2020, FDI inflows were at R51.1-billion, down from R74-billion in 2019.

In the last almost decade and a half since President Jacob Zuma’s ascension to the highest office, South Africa has consistently struggled to attract foreign investment due to increasing political and policy uncertainty and wide-ranging corruption and infighting within the ruling party, which has soured investor confidence. 

Conclusion

There is no solution to low incomes in this country that does not involve fixing long-running structural issues in order to entice foreign investment, and upskilling and educating the labour force.

Union involvement comes with very hefty economic and social consequences which include higher (youth) unemployment and idle young men who become very susceptible to lives of petty and violent crime. There needs to be a commitment to policy certainty, to common sense reforms which lead to investment and to the medium- to long-term work of up-skilling and educating our country’s workforce.

The views of the writer are not necessarily the views of the Daily Friend or the IRR

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contributor

Sindile Vabaza is an avid writer and an aspiring economist.