South-Africa has improved considerably from the 2007 global recession, recording increases in foreign direct investments and steady improvements in its budget deficit. However there are still major challenges posed, particularly regarding unemployment and poverty. High Inflation rates prove a major hurdle, with the government seeking to alleviate the negative effects this poses. Inflation and wages are interrelated, high inflation demands increase in wages to maintain the current lifestyle at higher prices. The years 2007 and 2010 highlighted the gravity of the war on wages, as two mass public sector strikes cost South Africa billions of rands. Last year’s civil servants strike lasted 20 days, which preceded nine months of negotiations, ultimately resulting in a 7.5% raise and a 60% increase in housing allowances.

The war is a continuous one. This year, May 2012 municipal workers demanded a 15% pay increase, going against the decision by one of the biggest public sector unions in the country to demand an increase of no more than 10% this year. Minister of Finance Pravin Gordhan said in this year’s budget speech that public sector wage increases had to be capped at 5%. More than 1-million people work in the public sector, and approximately R89 billion is set aside for government employees. Can South-African government afford to pay these wages? Is inflation the only factor to consider when granting employees wage increments? Isn’t productivity an essential element in determining the extent that wages should be increased/decreased? Continue reading »