Are job losses in the metal industry set to continue?

Minimum wage increases in the metal industry have become prohibitively high. Year upon year of awarding above-inflation increases has led to a situation where minimum wage rates, especially amongst lesser-skilled employees, have been pushed to a level where the value that an unskilled labourer is able to add to his or her employer no longer matches his or her wage rate. Historically, collective bargaining in the metal industry has comprised of the trade unions presenting employers with a “shopping list” of demands every few years, and the employers deciding how little or how much of the list to give away, without ever getting anything, such as a corresponding increase in productivity, in return. This decision has typically, and especially of late, been made under threat of violent protest action. It is the effect that this cycle has on business that is proving detrimental.

I read a thesis recently sent to me by the doctoral candidate where his research had shown that every time a collective wage agreement is extended to non-parties in South Africa, employment in the sector concerned drops by an average of 8%! With the official unemployment rate currently sitting at 32.5%, the situation is dire. However, the situation in the metal industry is made worse by the fact that, in 1992, employers in the industry conceded to the trade union demand that wage increases be awarded on actual rates of pay and not on minimums. Since, at the time, minimum wage rates were far more market related, the effects of this concession weren’t felt for many years.

Unfortunately, however, the chickens are now coming home to roost. Wage rates are rising now at an exponential rate. For many years after the agreement to implement increases on actuals was done, the wage rate remained relatively flat and the effects weren’t all that noticeable, year on year. However, as time passed, the effect of compound interest increases and the increases in actual wages is felt more and more as each year passes. Bear in mind that the current agreement between SEIFSA (Steel and Engineering Industries Federation of Southern Africa) and the trade unions contains a minimum, entry-level wage rate of R50 per hour (that’s for a totally unskilled employee seeking to enter the industry with no experience).

From a practical point of view, this means that a company may employ two employees, Employee A and Employee B, that do the same job. Since Employee A has been employed for longer, assume that he has a slightly higher wage rate of, let’s say, R52 per hour as compared with Employee B’s R50 per hour. When increases are awarded on actual rates of pay, the difference between the two employees becomes exponentially larger over time. This is just at company level the same is happening between the company and its competitor down the road, as well as its competitor over in China.

In order to address this unsustainable situation, SAEFA (South African Engineers and Founders Association) has brought about several changes with our approach, most importantly the introduction of a New Entrant Wage Structure and the ability to implement wage increases on minimums. Implementing wage increases on minimums, of course, allows employers to address the problems that we have just mentioned above.

The introduction of a New Entrant Wage Structure allows, as the name suggests, all new employees to be employed at an affordable rate, starting at R30 per hour. Now I know what many readers may be thinking: “How does anyone survive on an income of R30 per hour?” I don’t know – I would certainly struggle. But consider this for a moment. Our research indicates that the vast majority of wage earners, particularly at the lesser skilled levels, are the sole breadwinners in households of multiple unemployed adults. Any business owner in the manufacturing space will testify to that fact. If you consider that currently, a minimum wage rate of R50 per hour is relied upon to cater for the needs of multiple unemployed adults and their children, it’s little wonder why employees will fight tooth-and-nail for above inflation increases. An employee like that may demand to be paid a 10% wage increase in the current economic environment where inflation is currently sitting at 2.9%. So, his or her wage will rise from R50 per hour to R55 per hour and R55 per hour will then flow into the household.

Compare this with introducing a New Entrant Wage Structure at R30, which has the effect of another member of the household securing employment. All of a sudden, the income to that household has increased not by R5 per hour, but by R30 per hour. This is a 60% increase. There is now R80 per hour flowing into that household. That model, as simple as it is, has been proven to work at our member companies.

Now we mentioned that under the SEIFSA agreement, the entry level minimum wage rate is R50 per hour. When all of the cost of employment “add-ons”, such as compulsory contributions to social security funds, etc. are considered, this figure rises to over R70 per hour – a rise of over R20 per hour. That’s roughly equivalent to the National Minimum Wage. By comparison, the SAEFA New Entrant Wage Rate rises by between R13 and R14 per hour to R43. The savings are there and so is the value add for taking on unskilled employees and giving them a foot in the door.

If you are a metal industry employer and you feel, in any way, stifled by the unaffordable wage rates of an agreement that binds you, think very carefully about your affiliation to your employer’s organisation. I believe that we have an obligation to address the unemployment crisis in South Africa and building a solid manufacturing base in the country provides a platform for other issues to be addressed. It’s not too late at the moment, but if you sit on your hands, you may find that your employer representatives sign another multi-year deal at unaffordable rates, which then bind you. If that happens, this time, however, you may not be able to survive long enough to see the expiry of the agreement.

This is the opinion of Gordon Angus, SAEFA Executive Director.