High wages = less jobs

It is therefore sad that some labour arbitrators are approving wage increases as high as 50%. They are using Zimdollar era models – when inflation is no longer the number one enemy.

Zimbabwean companies pay the highest minimum wage in the region, albeit with the lowest inflation rate at 4.6%. Prices for tradable goods in the region are relatively the same as ours – so there is no reason for such a strong appetite for wage increases.

Apart from lack of capital, the manufacturing sector also faces lack of long term credit and low domestic demand. As a result of the high wage demands by workers, the number of labour disputes has increased. According to the Confederation of Zimbabwe Industries’ 2011 Manufacturing Sector Survey the 87 companies which were surveyed handled 210 labour disputes, mostly related to salaries and wages.

High wage demands mean fewer jobs. In Bulawayo, for example, about 100 companies have closed down over the past two years, leaving at least 20 000 people unemployed. Many companies across the country are scaling down or closing down.

If labour costs continue to be unsustainable, the issue of regional integration will certainly yield negative effects, as this country will not be competitive. The COMESA Customs Union, the Economic Partnership Agreements and the Tripartite Free Trade Area are all inevitable forms of integration that can be a real threat if we are not preparing ourselves well.

The manufacturing sector is trying to promote employment growth by ensuring that contracts will be renewed when they expire. But the impact of high wage demands means that some contracts are not renewed. It also means many employees are being moved from permanent to casual, compromising job security. The table below shows permanent vis-à-vis casual employees from 2003 to 2011.

Time bomb

Another time bomb that is scaring industry concerns the precedent that has been set by the courts on exchange rates when dealing with labour cases from the Zimdollar era. An employee was recently given an award using the exchange rate of US$1:Z$55. This would cripple the economy.

There is need to consider using immediate post dollarisation wages, or the United Nations exchange rate (US$1:Z$35 quadrillion), as a benchmark for settling wage disputes of this nature. The labour laws also make it difficult for an employer to fire and hire. Labor laws should be inspired by the concept of flexicurity.

This is where both employers and employees are given a more flexible environment for changing jobs. In return for that the employment must provide people with the training they need to keep their skills up to date and to develop their talent, as well as providing them with adequate unemployment benefits if they were to lose their job for a period of time.

More jobs can only be created if there is a balance between flexible job arrangements and secure transitions between jobs. With a view to bringing security to jobs the government should consider creating an unemployment fund, where employers and employees contribute on a regular basis.

Issues of productivity- based remuneration should be seriously considered. The current minimum wage laws are not compatible with this. Given the increase in capacity utilization, the environment is becoming more conducive for productivity based remuneration. Capacity utilization has increased by 13.6%, from 43.7% in 2010 to 57.3% in 2011. But there are a lot of power cuts these days and sometimes employees spent most of the day sitting idle.

Because of lack of productivity systems in place, labour has become less productive in Zimbabwe. In South Africa, for example, it takes 60 employees to produce 40 000 batteries per month; whilst in Zimbabwe 200 employees produce 10 000 batteries per month. – cmachadu@ovi.com