Attacks on wages: the case of the construction industry | by Amandla! editorial staff

by Jul 11, 2012Magazine

Average real wage within Construction (contractors), 1994-2011
1. Wage increases above inflation? Yes, of course!
The wage Bargaining season is here again and the media will again complain about “wage demands are inflationary”. Read: “Wage demands are too high”. But if ordinary wages always increase at the same rate as inflation – which is the average price increase on things we buy in the shops – then the buying power of workers will stay the same, year after year, decade after decade. The life of a working class household would never change, but inequality in society would grow worse. The fact is that the country is producing more and more per employee and per resident (including children, people of working age and old people) every year. If ordinary wages only increase at the rate of inflation, then it would only be shareholders, top managers and the upper middle class who would see their living standard and consumption grow every year. Indeed, if ordinary wages increase even less than the growth in prices (inflation), then the average worker and working class household will get poorer, despite the country becoming richer overall! Inequality would then increase even more, as would the consumption of the top income earners.
Diagram 1: Average real wages started to fall in the construction industry during 2007-2009 (Source: Quantec). It is important to note that the average wage in the diagram can be very misleading. It includes top managers and employers paying salaries to themselves. Probably, the trajectory of ordinary workers’ wages has been worse than what the diagram shows. The median worker wage – the typical wage – was registered for all workers at R2800 per month for 2010. [Source: Stats SA]
2. The case of the construction industry
The struggle of The workers for better lives is an essential part of the solution to the mass unemployment crisis. Employers only aggravate this crisis on the national level by attacking the wages of their own workers. They have no moral right to do so. For the nation, it is also economically selfdefeating. When the wages for ordinary people fall or don’t increase, small shop owners and local industry sell too little. The construction industry is an extreme example: that profits are too high and wages are too low is highlighted by the extreme development. The industry, with close to 700 000 formally and informally employed workers, is an example of falling real wages.
Diagram 2: The falling wage share of what the Construction industry adds each year in production value to the gross domestic product (GDP). Wages plus Profits equal Value added. When the wage share falls – in this case from 60.6% in 2000 to 36.6% in 2011, or a staggering 24 percentage points – profits increase commensurately. The category `Construction (contractors)’ includes the whole construction industry (Source: Statistic SA, GDP reports).
Workers lose to bosses
The increase in production every year is much higher than the increase of the population of South Africa. Because of this, the society as a whole is becoming wealthier every year. If the majority does not experience improvement in their lives in such a situation, this indicates that the workers are losing out to the bosses. Wage increases should be above the average rate of price increases (inflation) every year to avoid this.
3. Construction: Falling Wage Share of New Value
At the same time it is also a typical case of a falling wage share of value added or GDP (since 1998) in the South African economy. A fall in the wage share within an industry leads to growing inequality between everyone with an economic relation to this industry: workers and workers’ households on the one hand, and bosses, shareholders, and other groups economically tied to the elite in the industry, on the other. Super-profits also lead to the growing power of the building industry bosses, especially the power of the six dominant building companies that control about 80 percent of the market.
A falling wage share of value added in an industry like construction doesn’t necessarily mean falling real wages and less buying power. Real wages can grow even when the incomes from profits and the incomes of employers and top managers increase even more. This is how capitalist society becomes more and more unequal. More money on the profit side of the economy also means more power in the hands of the few, which translates into political power for the capitalists. The case of the construction industry perhaps shows, or at least warns us, that if a fall in the wage share is not stopped, this process at a certain point will also lead to falling real wages.
Diagram 3: Profits (“Gross Operating Surplus”) and Investments (“Gross Fixed Capital Formation”) in South Africa’s construction industry. (Source: Stats SA, GDP reports and the SA Reserve Bank, national accounts, and Amandla! calculations.)
4. Construction: What are they doing with their profits?
The classical argumenT againsT higher wages is “But we need the profit for investments”. But what are SA employers actually doing with their control over the profits? Diagram 2 shows what happened, or rather what did not happen, with the super profits reaped in the construction industry in 2000-2011. In 2000, 24.1 percent of the profits in the construction industry were reinvested.
In 2011, only R9.6 billion out if R76.4 billion in profits were reinvested. This crucial ratio fell from 24 to 12.6 percent during the decade. The argument against higher wages is thus completely undermined. As for taxing the profits, it can be noted, that the state never collects more than 10-11 percent of the profits of the construction industry (R7.6 billion when profits were R76 billion). This is the effective tax rate in 2007-2009, after the accountants have fraudulently used their creativity to reduce the profits to the much lower “taxable income”.
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