Labour costs, flexibility, competitiveness and equity: Do labour costs support or hinder productivity?

The study conducted by Labour and Economics Research Institute of Zimbabwe (LEDRIZ) was commissioned by National Economic Consultative Forum. It analyzed the wage structure and its determinants in the public and private sectors and its impact on the Zimbabwean economy for the period 2009-2015. The paper also reviews the public sector wage structure, public-private wage differentials and the institutions governing the determination of wages.

The report establishes that the public sector wage bill poses a serious threat to fiscal and macroeconomic stability of the country. Zimbabwe has one of the highest public employment costs in Sub-Saharan Africa (SSA), with the public sector wage bill growth far outstripping economic growth.

Source: IMF (2014)

The high public sector wage bill has crowded out essential public investment in capital projects and key social services. Further, the high public sector wages are higher than those prevailing in the private sector. The report indicates a general decline in real average earnings for the economy since 2009.

Other notable findings from the report are, in brief:

In 2013 Zimbabwe had the highest civil service wages in sub-saharan Africa

• Public sector wage premiums are very high; whilst the private sector wage is much lower than the public wage
• Wages in nongovernmental organisations, parastatals, municipalities and government entities outstrip those in the productive sector (private sector). This contributes to the high cost of doing business in Zimbabwe.

Table 1: Average Monthly Earnings, Poverty Lines and Per Capita Income

Source: calculations from ZIMSTAT data. Wages are in US$

• A study on the ‘Cost Driver Analysis of the Zimbabwean Economy’ by ZEPARU (2014) revealed that labour costs are higher in Zimbabwe than they are in Zambia, Botswana, and Mozambique. The graph below demonstrates that, for example in mining, for every dollar made, 24 cents goes towards labour costs

Table 2: Unit Labour Costs

Source: calculations from ZIMSTAT data.

The discussions that followed the presentation of the report acknowledged the key role of the informal economy and why it needs to be formalised for the benefit of both the state and those active in this sector. Most of the comments decried the over-regulation of this sector and the general labour market, which fuelled underhand deals and increases in corruption.

The report, which will be amended to accommodate some changes suggested by the participants, offers some insightful recommendations on policy changes that will help to regulate the labour market. The government was encouraged to put in place fiscal rules that would put a ceiling on the Public Sector Wage Bill, align the public service salary negotiations with the National Budget Process, as well as introduce a biometric payroll registration of public sector workers and pensioners to improve accountability. It would also be beneficial to the overall labour market governance to integrate collective bargaining in both the public and private sectors and address income disparities between top management and ordinary workers within parastatals. An institutional framework for setting wages coupled with broadening the role of NECs to focus on other non-wage related issues would ensure that the labour market is regulated. The study also recommends that reform and harmonisation of labour legislation in the public sector would resolve the prevailing fragmented legal framework governing the labour market. The government was further urged to adopt growth-friendly policies on taxes and revise the general cost of doing business in the country. This would not only attract new foreign investment but would also provide huge incentives for informal businesses to formalise. Ultimately, it would also benefit the labour market to initiate national discussions on the necessary steps to be taken to improve productivity in the formal and informal economies.