Income inequality declines sharply as civil service numbers balloon
The South African economy created 80 000 jobs in January, representing annualised growth of 5% over the previous month. Even so, the economy is still 420 000 jobs short of the peak employment level prior to the 2009 global financial crisis.
The Adcorp Employment Index, released this morning, reveals that all employment contract types reported gains in employment, notably temporary work (+7,1%) and agency work (+8,0%). Temporary work now represents 3,87 million workers or 30,1% of the workforce.
Adcorp, the JSE-listed human capital management group, finds that all sectors of the economy reported gains in employment in January, notably wholesale and retail trade (+13,6%), transport and logistics (+8,8%) and government (+3,1%).
The report says that all occupational categories reported growth in employment, but high-skilled categories (management and professionals) reported the strongest growth (+4,7%), “reflecting the economy’s ongoing reorientation toward high-skilled positions”.
Clerks, service workers and sales and marketing staff reported strong growth (+8,0%), “reflecting the relative economic buoyancy of the consumer sectors of the economy”.
In-depth analyses by Loane Sharp, labour economist at Adcorp, find that over the past decade, two important personal income trends have emerged in South Africa:
- after-inflation incomes have risen sharply, from R44 431 a year in 2000 to R61 645 in 2011 – a real increase of 39%, or a respectable 3,3% a year; and
- income inequality between the races, especially between blacks and whites, has declined sharply.
In 2000, the average black South African earned 15% of the average white South African’s income, whereas in 2011, a typical black person earned 40% of a typical white person’s income.
Currently 1,3 million blacks (or 14% of the black workforce) earn as much as or more than the average white, up from 270 000 in 2000 – an increase of more than 1 million, or 378%.
To a great extent, Sharp observes, the improvement in black incomes has been associated with the civil service.
“Over the past decade, government employment has increased from 1 million to 1,24 million, and the proportion of blacks in the civil service has increased from 42% to 74%. As a result, nearly 40% of South Africa’s highest-earning blacks are employees of the South African government.
“Partly this is associated with trade unionisation: currently 70% of the public sector workforce belongs to a trade union, compared to 26% for the private sector.”
But more significantly, says Sharp, the steep increase in black civil servants’ incomes is associated with “managerial bloat”: officially, government wages have increased by just 5,4% a year, but the government has utilised the twin mechanisms of promotion and job re-grading (which are not subject to public sector wage agreements) to increase the income of black civil servants.
The result is that average remuneration for public sector workers is now 32% higher than that of private sector workers.
At present, Sharp says, compensation of employees represents nearly 90% of total government spending. “Clearly, strategic use of the government payroll has been a major contributor to the emerging black middle class in South Africa.”
Nonetheless, three in five of South Africa’s highest-earning blacks are employed in the private sector – numbering around 820 000 at present.
“If the historical rate of progression is maintained, by 2020 there will be 5,1 million blacks earning more than the average white in private business enterprises. At this rate, the income gap will close in less than 10 years: the average white person’s income is currently rising by 5,3% a year, whereas the average black person’s income is rising by 14,9%.”
Sharp finds that these figures, which suggest that racial disparities in the private sector are closing relatively quickly, do not tally with the employment equity figures presented by the Department of Labour, with the important implication that the government’s figures – which narrowly emphasise racial quotas in managerial positions – are missing a dramatic pattern of improvement in the labour market.
Sharp recommends several government strategies to accelerate this process.
- Given that the most important single impediment to rising incomes and narrowing inequality is the public education system, no government function does more to perpetuate racial disparities than the poor standard of secondary education, which by reducing (mostly black) learner options for education and skills, reduces their prospects for employment.
- Labour laws are in need of review and targeted relaxation, notably the two laws that diminish job creation by small businesses – dismissal protections and automatic extensions of collective bargaining agreements.
- Government’s inefficient and bureaucratic immigration controls, which prevent high-skilled foreigners from imparting their skills and experience to local workplaces, have artificially boosted incomes of high-skilled workers.
“The implication is that government policies – notably secondary schooling, restrictive labour laws and immigration controls – have been holding black incomes back. Without these counterproductive policies, blacks’ incomes would probably be rising even faster relative to whites’, and the income gap would be falling even faster.”
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