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SA labour productivity at the lowest level in 46 years

Labour’s share of national income at all-time low; capital’s at all-time high.

Employment in South Africa stalled in July, growing at an annualised rate of just 0,23% following sharp declines of 3,1% and 2,0% in June. Job gains in July amounted to 3 773, which is “statistically insignificant”.
 
Adcorp, the JSE-listed human capital management group, found that most sectors – including mining (+8,1%), transport and communication (+4,3%) and wholesale and retail trade (+3,5%) – showed employment gains. However, the declines in construction (-11,7%), manufacturing (-3,6%), and financial services (-4,4%) offset almost all the month’s employment growth.
 
Adcorp’s index of informal sector employment rose by a brisk 1,9%, representing the 13th consecutive monthly rise.
 
Alarmingly, the Adcorp report shows that since 1967 labour productivity has fallen from R7 297 to R4 924 a year, which is a decline of 32,5%. From the 1993 peak, labour productivity has fallen by a steep 41,2%.
 
Productivity, defined as making the most of limited resources, is a paramount economic goal, whereas labour productivity – the contribution that labour makes to overall productivity – is a central force in the labour market.
 
“If we look at these definitions an example would be that if you combine higher labour productivity with competition between employers this will result in real wages rising. Furthermore the history of living standards is closely connected to improved methods of recruiting, training, equipping and managing workers,” says Adcorp labour economist Loane Sharp.
 
Despite the overarching importance of labour productivity, there are no commonly agreed methods for measuring it. Sharp says that the most common definition – output per worker – suffers from serious limitations. Real output per worker has been rising consistently in South Africa since the 1960s, when official records began. In 1967, the average worker produced R63 162 of real output a year, whereas in 2012, the average worker produced R143 412 of real output a year – a growth of 127,1%.
 
The problem with the output-per-worker definition of labour productivity is that output is not only produced by workers. Other factors of production, such as land, capital and entrepreneurship are omitted from the definition.
 
A better procedure, says Sharp, would be to standardise the output-per-worker measure by the amount of capital used in the production process, which yields output per worker, per unit of capital.
 
Such a procedure, says Sharp, would yield a completely different perspective on South African labour productivity. Since 1967, output per worker per unit of capital has fallen from R7 297 to R4 924 a year – a  decline of 32,5%. From the peak in 1993, this measure of labour productivity has fallen by 41,2%.
 
“This measure at least explains why the South African economy’s labour intensity is falling and returns on capital are rising and why labour’s share of national income is at an all-time low while capital’s share is at an all-time high.”

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