Salary increments: Need for caution

That the thousands of people employed by government are struggling to make ends meet cannot be disputed. They are finding it difficult to pay rent, buy groceries and send their children to school. They are also having a torrid time meeting medical bills and remitting money to equally struggling dependents. In light of this, their case for a raise in salaries makes a lot of sense.

While negotiations between the government and civil servants are still ongoing and have been stalled by a disagreement over whether or not to remunerate public employees in line with the PDL, there is need for the workers to tread with caution.

It is not always the case that a raise in salary yields the desired result of cushioning workers. When we look back, there has tended to be a salary-price spiral. In the past, whenever civil servants were favoured with salary increments, wholesalers and retailers would also raise prices of commodities. In reality, the prices of commodities would rise at a steeper gradient than the salary increments, resulting in nobody being better off – apart from the greedy retailers of course.

Granted, we might not end up mired in a hyperinflationary environment as was the case in the past because we are operating in a dollarized economy, but the effects might still be painful. Thus, where a civil servant was paying $200 for two rooms, he might end up paying $350, while transport, food, fuel and fees would go up.

This might leave government with no choice but to impose price controls. And as we have seen in the past, price controls have a debilitating effect on the economy – making matters worse for everyone. They tend to offset commodity shortages and cause artificial price hikes as goods are diverted to the black market. This would in turn create a need for a further salary rise, and possible industrial action that disturbs stability and the economy in general.

Needless to say, the private sector tends to respond to dynamics in the public sector, in which case non-government employees would take the cue and push for hefty salary adjustments.

This scenario might sound alarmist considering that the dollarised economy operates differently from the Zim-dollar one that we discarded in 2009. However, it would be wise to tread with caution when negotiating for a salary hike.