OPEN ECONOMY: The truth about salaries in Zim

15 Nov, 2015 - 00:11 0 Views
OPEN ECONOMY: The truth about salaries in Zim Sunday Mail

The Sunday Mail

An argument you may come across in Zimbabwe is that salaries are too high. As any declarative statement must be taken in correct context, the advancement of this argument is often done to reinforce two mutually related notions.
Firstly, employers must not pay year-end bonuses.
Secondly, Zimbabwean salaries are higher than regional and many global labour markets, implying that they are more rewarding.
The latter notion used to justify the former on the effects of a strong US dollar. It would suffice micro-economic logic to leave the decision on whether to pay bonuses or not to respective employers.
Such a payment is by and large subjective to each employer’s unique financial circumstance. Perhaps the most effective mechanism to distribute equitable influence between employers and labour on such a decision would be to focus on labour’s ability to resign assuming disgruntlement in instances that it is not paid a bonus.
There is ample room tough debate on that; however, it is not the aimed point of emphasis here.
Instead, the argument that Zimbabwean salaries are higher than regional and global markets fosters a perilous understanding of our comparative wage structures. It is conceived of a deficient perception; one which we must immediate discredit.
While the wage structures of individual countries can be assessed on a comparative scale, conclusions are often misleading because of ignorance to the relativity of numeric income.
To illustrate this point consider that an African Development Bank study in 2011 defined middle class in Africa as those living on US$2 to US$20 a day.
It concluded that roughly a third of Africa’s population was middle class.
In another study by the Pew Research Centre, middle class started off at those living on US$10 or more a day.
It suggested that only six percent of Africa’s population, using that scale, can be classified as middle-income.
These divergent analyses warn of the relative nature of income; a risk on which respective nations can derive misleading conclusions about the true state of their labour market’s welfare.
Without careful cognisance to the relative nature of incomes, a country may entertain a false perception that its labour market’s income levels are more rewarding than they actually are.
For instance, we do this in Zimbabwe when we say our D1 civil servant salaries are middle class, with some suggestions that the US$14 a day is actually overly rewarding. To reinforce this notion we often use comparisons with countries like Mozambique, Ethiopia, and even India where average salaries are numerically lower.
This is as specious arithmetic as suggesting that by saving 10 percent salary, if Bill Gates is saving five percent, then this writer is setting himself up for a much more comfortable retirement than Microsoft’s founder.
Would you allow me to be so naïve? Nevertheless, economists try to get over this numeric relativity of incomes through the purchasing power parity metric. Purchasing power parity acts as a currency conversion to measure the amount of goods that relative incomes can purchase in two different economies.
While it is a credible and trustworthy means of quantifying the material that incomes avail to labour markets, it is misleading in that it over-weighs currency exchange rates as the influencer of prices and it excludes other significant cost variables unique to each economy.
Consider that a pint of beer in Zimbabwe is now USc89 compared to US$1,80 in the US. One might conclude better income levels in Zimbabwe as beer is cheaper and seems more affordable.
However, the perceived cheapness of beer in Zimbabwe is actually a consequence of deflationary pressures caused by our overall low incomes and demand!
Thus, purchasing power parity is still susceptible to misleading perceptions on the rewarding nature of incomes.
A more precise methodology of assessing whether or not our labour market is overly rewarded is to use personal living standards and cumulative macro-economic contribution. Such a manner considers the structural design of an economy hence it is a more sustainable means of assessing income levels.
If we revert back to D1 civil servant salaries, a nurse, teacher or other high skilled civil servant is at US$420 a month. In terms of personal living standards, I would say that salary is not rewarding at all.
Considering the personal cost of acquiring such level competence, reward would be income levels that enable at least a mortgage to purchase a reasonably size urban home, send children to reasonable quality schools, and have left over disposable income to spend.
This is the demographic of our labour force which should at the very least be the lower middle class. Perhaps a great indication of how income levels are not rewarding enough is the number of professionals that choose to migrate to other economies. Most professions are in fact priced out of the Zimbabwean market.
Brain drain does not say our labour market is overly rewarded; it actually gives credence to the contrary.
It is under rewarding in terms of cumulative macro-economic contribution, the aforementioned demographic must also be a significant, let’s say at least 30 percent of domestic consumption.
In fact, one of our greatest economic challenges is that at present incomes this demographic is not contributing enough to stimulate adequate demand for economic growth.
Its income levels are in effect too low for their intended macro-economic contribution.
An interesting anecdote is that consumption industries are actually deterred from making consumer focused investment in Zimbabwe because of our economy’s comparatively low income levels.
Economies such as Nigeria or Ethiopia offer better retail opportunities because of economies of scale, whilst an economy like Botswana has higher income levels.
Thus, by factoring personal living standards and cumulative macro-economic contribution, we can see that our labour market is not overly rewarded at all. The situation is quite the contrary.
It is therefore a misconception to say that the labour market does not deserve a year-end bonus because it is already overly rewarded.
That reasoning is based on a flawed premise. By accommodating its acceptance we would be furthering ourselves from the real solutions that need to take place in our labour market — which are improved living standards and greater cumulative macro-economic contribution.
It is a pervasive misunderstanding that labour costs are expensive in Zimbabwe.
The highest costs of doing business in our economy are soft and hard infrastructure costs passed along value chains from the inefficiency and mismanagement of regulators and providers of this infrastructure.
Our labour force is not overly rewarded!

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