Forum Discussion Module 4 Topic 1: 

You are at negotiation table with Trade Unions to fix

a new minimum wage and several collective bargaining agreements in different sectors

Before replying this question please read the Read the extracts from ILO Global Wage
report 2016-17, and the OECD study “Decoupling of wages from productivity” (Section
READ AND WATCH)

You are at negotiation table with Trade Unions to fix a new minimum wage and several
collective bargaining agreements in different sectors. Trade unions provides data
demonstrating that average wage growth has lagged behind average labour productivity
growth since the early 1980s in your country. Labour share of GDP has declined from 67% in
1982 to 52% in 2019. For this reason, also in order to correct possible negative
macroeconomic imbalances, Trade Unions argue that a strong increase in wages is much
needed. What would you reply? Which counterarguments could you eventually bring to the
table?

I am in favour of the needs-based negotiations model. This model pushes the following:
 Separate the people from the problem
 Focus on interests, not positions
 Invent options for mutual gain
 Insist on using objective criteria

The Trade union leader is also in favour and has experience in previous needs-based
negotiations which yielded the desired outcomes for both parties and created a win-win.
The employer contingent had no issue with the strong increase in wages. Both parties
adopted the needs-based approach to finding a solution for accommodation Cost of Living
and productivity expectations. The parties agreed that the watching of the video in the ITC
ILO course on ‘Why Productivity Matters’ is useful and both parties could agree to adopt the
Costa Rican model. Of mutual concern is the Cost of Living in South Africa and national
policies which (as explained later) drive consumer spending instead. The Trade union
accepts that employers report to shareholders who makes capital available and invest in
sectors from which they can derive dividends and also subscribes to address the countries
microeconomics constraints (as outlined lower down in this piece). The Trade union endorses
the inclusion of productivity expectations and information from the SA Reserve bank on an
annual basis. Both parties agreed to the importance of the countries’ growth rate per capita
plus provision for exit clauses. Both parties agreed to the pros and cons of the model and
accepted that there is ‘no size fits all. Of concern to both parties and which will be built into
the agreement for the Department of Labour’s sign-off are exit clauses, for both employers
and labour which will also be mutually agreed, which speaks to:

 High inflation
 Increased consumer spending
 The high rate of unemployment
 High appreciations
 High depreciations.
Trade union presented data demonstrating that average wage growth has lagged behind
average labour productivity growth since the early 1980s in your country.
The employer contingent agreed to the data submitted by the Trade Unions, following
consent by both parties to bring in 3 independent economists specializing in the field of
average wage growth and average labour productivity growth.

AGREED.

Further that Labour share of GDP has declined from 67% in 1982 to 52% in 2019.
The employer contingent agreed to the data submitted by the Trade Unions, following
consent by both parties to bring in 3 independent economists specializing in the field of
Labour share of GDP.
AGREED.
Also in order to correct possible negative macroeconomic imbalances.
Ahead, and to find time to constructively address the matter at hand, both parties agreed to
attend several presentations and participated in discussion around South Africa’s
microeconomic constraints or blockages within the South African economy. Below is an
extensive list which the parties agreed to:
 The functioning of the skills system including workplace skills initiatives
 Spatial development patterns introduced by apartheid
 Poor passenger and freight transport systems
 Poorly regulated monopoly markets
 Labour market constraints high poverty
 Inequities in the tax system
 The low productivity in high tariff industries
 Low levels of efficiency in public run enterprises
 High levels of crime

During the pre-negotiation sessions, a facilitator endeavoured to address the following

matters, agreed to between parties, as a mutual concern. The matters below are underpinned
by research from higher education institutions in South Africa:
 “Increases to labour’s share of output goes mostly into incomes rather than
employment gains.
 This reflects longstanding tendencies in South Africa’s growth path.
 The employment rate remains largely unchanged in all scenarios; instead,
real labour compensation rises.
 Increasing government investment expenditure supports the positive
benefits achieved by ‘catch-‐up’ through improved ‘multipliers’. This
indicates that policies which increase the labour share, including
minimum wages, can create an improved economic basis for
complementary policies – such as the infrastructural spending in
the National Development Plan (NDP).
 By itself a modest rebalancing of income in the South African
economy, while beneficial from an economic perspective, does not
radically alter the economy’s trajectory and does not reduce
unemployment.”
The parties agreed to the above and to move “When (the aforementioned is) implemented in
conjunction with other major developmental policies these results may change.

The parties considered, and agreed to:

Statistical correlations between the real wage growth and labour productivity in selected
economies

Short-term dynamics of the real wage

The large employment loss can also represent other factors, such as the recent rapid increase
in real wages

Clear evidence of a weak link between real wage growth and labour productivity growth in
South Africa

The deviations of the real wage from the marginal productivity of labour have implications
for the firms’ profitability margins and thus may also have repercussions for unemployment
and employment creation.

Moving on to SECTORAL DYNAMICS OF EMPLOYMENT, REAL WAGES, AND

LABOUR PRODUCTIVITY (based on empirical research and facilitator, mutually agreed to
between the parties, the following stood out:

“Most of the job shedding in the non-agricultural sector occurred in formal employment,
particularly in manufacturing, trade, and construction, while in social services, finance, and
utilities, employment increased.”

Parties agreed to use the South African Reserve Bank’s data. Stemming from the facilitation
session the parties agreed that:

Labour productivity and real wage are co-integrated.

A cross-country analysis is used to examine the magnitude of the main determinants of the
real wage growth in selected emerging and advanced economies.

Further agreed that results confirm that the labour productivity growth plays an important
role in the wage setting process. The facilitator emphasized that “The coefficient of the
labour productivity growth is positive, significantly different from zero, and remains sizable,
even after controlling for the inertia in real wage growth. In addition, the labour markets’
tightness, as reflected by the unemployment rate was found to affect the real wage.”

Also agreed, and previously confirmed by the facilitator:

“Real wage growth is largely driven by other factors, which delink it from labour market
conditions. While creating unwarranted rigidities in the labour market, these factors also
amplify the impact of shocks on employment creation.”
The parties were also presented with the extracts from ILO Global Wage report 2016-17,
and the OECD study “Decoupling of wages from productivity.

Negotiated outcome - fix a new minimum wage and several collective bargaining
agreements in different sectors.

Both leaders of the delegations subscribed to the introduction and echoing of the national
federation of Trade unions in SA, COSATU, and the Business Unity SA, expressed in the
following snip:

In the negotiations both delegations requested the Minister of Labour to include, based on
amongst others the Costa Rican model, productivity approximations with exit clauses (as
described earlier). This agreement found favour with the honourable Minister and his
Department of Labour and both delegations were commended, during a special event, of
forward and progressive thinking to address the needs of employer and labour and
considerations of the constraints in the micro economy.