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Mike Schussler.

Economist, South Africa | Research.

SA's main economic problem is that we don't have jobs. Only four out of every 10 adults in SA work- the lowest number in the world, outside of a war zone at present, according to the International Labour Organisation.
Also important is the fact that less than 30% of our adults work in the formal sector as this is the area where most of us who earn a good living would be working.

According to the most recent Quarterly Employment Survey, there are just under 8.3 million employees and employers in the formal sector, outside of agriculture.

America would call this the non-farm payrolls - a figure they release monthly. US employment numbers have a major impact on equity markets, exchange rates, and even interest rates in the world's biggest economy.

It is quite concerning, however, that SA still employs 7.1% less people in the formal sector than in 1993. Yet our markets take no strong view on any employment number at all. Our government does not make the history available easily as one has to work out some of the statistics oneself and very few people can track SA's employment history that far back

Back in 1993 our population was not quite 40 million compared to just over 50 million today, indicating that we should have grown the formal job market by around 26% just to keep up with population growth.

Our unemployment rate has gone up from 22.3% to 25.7% but we now also have a new category called "discouraged job seekers".

Like for like our unemployment rate by my calculation has increased from about 27% to about 38%.

In a broad sense, the number of people seeking work in one way or another has doubled.

The economy has grown by 80% between 1993 and the present while salaries of the people that remain on the formal sector payrolls has grown by 110%. So instead of growing from nine million jobs to say 11 and a half million jobs, the South African economy actually saw a job decline to about 8.3 million.

SA has a new elite and they are the people employed in the formal sector. Yes, it includes me and also probably includes you the reader - as the majority of people that have computers and access to the internet have a formal job.

The big news is that if you were employed 18 years ago in the same job and, accounting for inflation, you earn today more than double what you did in 1993, but productivity has only increased by about 80%.

A big lesson out of this mega data is very simply that you cannot have real salary increases of 110% in 18 years when only growing the economy by 80%, and expect to create jobs - never mind millions of jobs.

Analysing the data, one can see that high economic growth goes together with job creation only when real salaries do not increase by more than the real growth rate.

In the years where real wages increased by more than real growth the figures reveal disastrous results in the number of jobs.

For example, from 1993 to 2004 workers saw their salaries increase by 5.7% per year whilst GDP only grew around 3.7% a year. This resulted in an 11-year decline in formal sector jobs at a rate of 1.3% a year.

From 2004 to 2008 the economy grew at 5% a year whilst real pay increases were only at 3% a year - this left room for a 2% employment growth annually.

In the last three years, big pay increases have led to a decline of about 5% of formal sector workers while in the last year we did see some job growth in the formal sector - all of it came from government departments and/or state-owned enterprises and the private sector numbers kept on falling.

This study builds on work by an economist called Johan van Tonder who is currently researching employment at the bureau of market research at UNISA. Johan showed similar trends when looking at workers who are receiving average compensation in real terms and employment according to the Labour Force survey numbers.

More than 90% of all formal sector workers are rich, not only in the South African or even African sense but in many first world terms too. The median salary of the formal sector employees is close to quite a few first world or rich countries. On a purchase power parity basis, South African formal sector employees are in the top 30 countries in the world today.

Formal sector salaries in SA are too high for the productivity we South Africans deliver. While some jobs are not tradable and therefore are not addressed immediately, many jobs that are tradable, while generally having a lower rate of pay, are at risk. Government jobs in SA pay on average 28% more than the private sector - this is an example of a non-tradable job.

Moreover it is important for the country not to focus on a few individuals who earn extraordinarily high salaries but rather to focus on the total elite working in the formal sector. The figures also show that average salaries have outpaced productivity growth for quite some time and it would be prudent for our political future for all formal sector workers to start thinking beyond their own pockets and look at the bigger picture.

Whilst sectors such as manufacturing and construction struggle in these hard economic times, and primary sectors such as agriculture and mining just don't get a look in whatsoever -  it is important that South Africans start to question the type of salary that formal sector employees get.

The evidence that South African jobs are highly paid does not only come from UBS but from The OECD, Commonwealth and for domestic workers from ILO studies. So do not focus just on executives and their very rich pay packets but also on teachers, policemen, clerks and probably even tailors.

I suggest in very simple terms:  If you today earn R10,000 per month and the inflation rate is 6%, then I think if you only get an increase of say 4% this would immediately help SA because jobs would become more sustainable and job growth in itself would become more likely.

That means instead of getting a salary increase of say R700 (or 1% over the inflation rate) you only get an increase of R400 - our ability to create jobs would then increase.

Focusing on a few hundred very rich owners and managers is not helpful to employment growth. It is way better to focus on the many, to do their part for a few years so that we can create more jobs. Germany has had wage restraints for 15 years and they are getting out of the current bad economic mess better than most countries. Winners stick together.



*Mike Schussler is director at economists.co.za. This article is to inform and educate, not to advise.

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