South Africans are paid more for doing less

South African wages continue to rise while productivity stagnates and, in some cases, declines. The South African Reserve Bank (SARB) revealed this in its Quarterly Bulletin for the first quarter of 2024. 

The Reserve Bank noted that the year-on-year increases in non-agricultural remuneration per employee moderated to 3.7% towards the end of 2023. This was due to remuneration growth slowing in the public sector. 

Public sector employees saw almost no growth of 0.4% in the third quarter of 2023, while private sector employees experienced a substantial increase of 4.8%. 

Wage increases in South Africa have historically not been matched with employee productivity increases. 

This disparity is potentially a longer-term driver of inflation, as fewer goods and services are produced for greater remuneration. 

Growth in labour productivity in the formal non-agricultural sector slowed for a fourth successive quarter, from an increase of 3.5% in the third quarter of 2022 to a decrease of 2.0% in the third quarter of 2023. 

This was as year-on-year employment growth accelerated, partly due to a significant increase in temporary public sector employment over this period, while output growth slowed.

Growth in the nominal cost of labour cost accelerated from 4.2% in the second quarter of 2023 to 5.9% in the third quarter, as year-on-year growth in total remuneration accelerated and that in output slowed. 

The notable acceleration in nominal unit labour cost since the fourth quarter of 2022 largely reflected base effects related to the delayed implementation of the annual public sector wage increase. 

The disparity between wages, the cost of labour, and the productivity of South African employees is shown in the graph below. 

In its South Africa Economic Outlook for March 2024, PwC revealed that South African productivity has remained flat for 15 years at just over R200,000 of GDP created per employed worker. 

Productivity is vital for any economy as it allows countries to produce more goods and services with the same or less resources. 

PwC said it plays a crucial role in bolstering employment opportunities, leading to better wages and improved economic conditions for individuals at the household level and across the nation. 

The typical measure used to analyse a country’s productivity is its real GDP per employed worker, which evaluates workers’ output. 

South Africa’s productivity, according to this metric, has shown no net gain between 2015 and 2023, with only marginal gains since 2008. 

From 2008 to 2023, the GDP output per employed worker has hovered around R200,000 per year with some peaks and troughs. 

Research by the World Bank ranked South Africa 80th out of 170 countries for productivity growth in 2015-2021. 

During this period, the rate of local productivity growth – as measured by GDP per employed person – was only two-thirds of the pace seen globally. 

“For South Africa, a more productive economy could also mean higher salaries and wages that directly elevate the standards of living and quality of life,” PwC said. 

However, the country’s productivity has effectively flatlined over the past 15 years due to issues such as load-shedding and relatively new logistics inefficiencies. 

South Africa’s productivity, as measured according to real GDP per employed worker, is shown below.