Why South African workers are not overpaid

Chris Malikane takes issue with Mike Schüssler's recent South African labour market analysis, commissioned by the trade union UASA. But in a classic case of the pot calling the kettle black, Malikane commits  some of the very same errors he identifies in Schüssler's work, bluntly rounding off his effort in claiming that the "white workforce... must have its wages halved."

Malikane accuses Schüssler of an abuse of statistics, but then wastes no time in stepping into the same statistical quagmire. If Schüssler was convenient in his use of average wage levels for different skill levels - instead of using mean wage levels, as Malikane wants him to - Malikane was ruthless in his deterministic reduction of distinct persons to essentially members of racial categories. Malikane commits this throughout. One striking example is when at one stage he drops skills from his equation and says that 95% of working white South Africans earn more than R2 000 per month and half of Africans earn less than R2 167, which supposedly points to racism.

But is Malikane, an associate professor in Economics, truly oblivious to the fact that differences in educational attainment - which greatly influences the general pattern of wages - correlates with "race" in the South African context? Regardless of the historical reasons behind this current situation, it must surely be recognised that at present educational attainment varies substantially across race groups: more concentrated amongst white and indian and less concentrated amongst coloured and black categories. A reader aware of this distribution of educational characteristics could just as well have inferred that wage differences across race groups are evidence of "educationalism" (and not racism).

Malikane also claims that lowering wages won't solve the "structural unemployment" situation in South Africa. He is correct, but for the wrong reasons.

First of all, simply cutting wages was not what Schüssler was advocating, as Malikane suggests, but nevertheless: there is no general prevalence of worker overpay in the private sector in South Africa. Insofar as both Malikane and Schüssler succumbs to the overpay fallacy - Schüssler loosely looking at average workers and Malikane expounding on the overpaid "white workforce" - both are wrong.

The reason one can confidently state that there is no widespread overpay in South Africa - or anywhere else in the private sector - is because of a fact about business enterprises: businesses don't exist with the goal of employing persons, they exist because their owners are trying to make a profit. It only makes sense for an employer to employ persons if the value they add exceeds the cost of employing them, from the employers' point of view. The market does not tolerate a situation where any group of workers, including those characterised by race or skill level, is generally overpaid.

Now, before the existence of employer profit is taken as evidence of the validity of Marxist exploitation theories, it should be briefly pointed out that employees also only accept employment when they gain more by working than what they give up, from their point of view. This is called the double coincidence of wants - both the employer and employee gain from the situation. Of course there are issues of power relations in this bargaining process, but that's where trade unions come in to inform and balance the outcome. The true employer-employee relationship isn't characterised by exploitation, but by mutual profit.

However, while current employees thus cannot be generally overpaid, high costs incidental to employment can and do prevent new employment relationships from arising. The solution to the high prevalence of unemployment in South Africa is emphatically not to drop the wages of current private sector employees (it is impossible anyway - businesses bid up wages in order to attract profitable employees), but to cut incidental employment costs.

Lowering employment costs without slashing wages is possible because wages are only one factor in the cost of employment - sometimes not even a major factor. To determine the full cost of employment one needs to include the cost of creating that environment in which an employee can produce a profit for the employer. The cost of creating this working environment not only includes spend on regular business infrastructure and run-of-the-mill costs, but also those substantial provisions for government-related factors: political instability, unnecessary red tape, racial discrimination (affirmative action), taxes and many other obstacles that lie in the way of both employment and wage increases.

Instead of slashing wages, employment costs should be brought down by slashing incidental costs such as some of those government-related factors. In fact: employment costs can then be brought down even while increasing wages.

It goes without saying that the employer-employee relationship should be regulated - and unions can play a great part in discovering mutually beneficial rules - but harmful and ill-advised regulations currently in government's sights, judging by the proposed new labour laws, are destructive. It boosts the cost of employment, thereby forcing down what employers can profitably offer as wages, putting existing workers out of work and keeping prospective workers out. Lower incidental employment costs will increase the chance of businesspersons recognising profit opportunities and seeking employees, who then themselves profit from those businesspersons' need for assistance.

Finally, there is one exception to the rule that an employee cannot be overpaid: where government holds the purse. In the private sector people make decisions to employ or work with their own time and money, but in the government sector people can remain employed despite their most counter-productive efforts. The taxes that fill this government purse are real resources bled from the working-and-saving class, raising the cost of doing business, lowering wages and increasing unemployment.

Piet le Roux is a senior researcher at the Solidarity Research Institute

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