Unemployment biggest culprit in South Africa’s inequality

14th November 2017 By: Megan van Wyngaardt - Creamer Media Contributing Editor Online

Unemployment, and not low formal sector wages, is the biggest cause of inequality in South Africa, economist Mike Schussler argued at a presentation of trade union Uasa’s sixteenth ‘South African Employment Report’, in Johannesburg, on Tuesday.

Noting that no other country among the 100 biggest economies in the world has had more than two decades of unemployment above 20%, he said South Africa’s low unemployment was what really impacted on the country’s Gini coefficient.

This is further enhanced by the Palma Index which measures the ratio of what the top 10% of the population earn compared with the bottom 40%.

In South Africa, that ratio was the highest by far, with the top 10% earning 7.1 times the income of the bottom 40%.

The bottom 40% of households receive more income from other sources than from work. On average, the bottom 40% of South African households receive less than 40% of their total income from work and receive more income from social grants, rent and family.

Only 30% of adults are employed in the formal sector and when compared with households it is clear how much the formal sector helps local households out of poverty.

“There are war zones, including Iraq and Yemen, that have a lower unemployment rate than we do,” Schussler pointed out.

“The point is, wage gaps have come down severely,” he added, pointing to the fact that unskilled and semiskilled workers were now earning almost the same as skilled workers.

In most cases, it seems that the minimum wage earned by elementary workers increased much faster than those in the middle and indeed those in some junior management and technical levels, he pointed out in his presentation, adding that skilled workers’ wage increases were only beating inflation by 1%.

Next year, South Africa will implement a minimum wage of R3 500 a month. This is to help close the wage gaps in South Africa and to help reduce inequality in the workplace.

“Wage settlements in South Africa have, over a long period of time, increased wages above the rate of inflation. Field surveys have not always reflected this and surveys such as the Quarterly Labour Force Survey (QLFS) seem to indicate that the typical wage is around R3 000 a month.

“Also, there seems to be very little evidence in the QLFS data that minimum and typical wages have increased while a host of other data such as Andrew Levy wage settlements and South African Revenue Service tax data show a very different trend.

“There are many questions about the accuracy of salary information in the QLFS and the Uasa employment report was initially rolled out because the data was questioned by unions [as early as the] 2000s,” said Schussler.

He added that the inflation-beating wage increases were not sustainable and pointed out that the unemployment crisis was further exacerbated by the lower paid areas in many of the sectoral determinations falling away.