Monday, September 06, 2010

Workers’ Strike Causes Problems in South Africa

The Wall Street Journal: Strike Hampers South African Growth

The Economist: South Africa's Economy: How It Could Do Even Better
The Economist: South Africa's Strikes: After the Party... Comes an Almighty Hangover
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South Africa is currently a country in crisis. A strike of around 1.3 million public-sector employees, which started on August 18, is causing chaos in the country. Services such as hospitals and schools are closed due to the strike. The walkout is costing the South African economy an estimated 1 billion rand ($138,300,000) per day. The public-sector workers are demanding an 8.6% increase in wages, as well as a 1,000 rand ($138) housing allowance. The South African government argues that the wage increase, which is double the inflation rate, is too costly. The government’s “final” offer to the workers was a 7% increase with a 700 rand allowance for housing, which the union refused to accept.

At this time, the biggest threat to the South African economy is the potential actions of the country’s largest union, the Congress of South African Trade Unions (COSATU). In trying to persuade the government to give in to the public-sector workers’ demands, COSATU is threatening to put all of its members, including mining and manufacturing workers, on a sympathy strike. A strike of COSATU’s two million members would exacerbate the existing struggles of the South African economy. Sympathy strikes have already been a problem for the South African government. Despite a court order, on August 24, thousands of municipal garbage collectors held a one-day sympathy strike which led to problems with refuse collections throughout the country’s major cities.

COSATU holds considerable power in the public sector and has consistently arranged raises for public-sector union workers that were well above inflation rates. In fact, public-sector workers’ wages have increased 34% over the last five years. Recently, the government has been trying to draw attention to the problems that consistent wages increases are causing. The country’s Finance Minister, Pravin Gordhan, addressed governmental concerns about the wage increases last February. Gordhan argued that the government could no longer handle the high wage increases, citing the last year’s increase of 13% as being the source of substantial stress on the country’s budget. If the government acquiesces to the wage increase demands this year, the government will be over budget by almost 8 billion rand. Government officials state that more money used to pay public-sector wages will mean less funds will go to essential services, such as road construction, education, and health care.

The strike has already been a significant burden on South Africa’s lower class, many of whom are already unable to pay for private education or health care. If the government agrees to the union demands, a significant portion of the country’s budget will be used towards wage increases for the public sector. This will make it increasingly hard for the government to address the country’s unemployment problems. Only about 40% of the country’s working-age population has a job, which is strikingly low for middle-income emerging markets like South Africa’s (most are around 60-75%). The official unemployment rate is 25%, but experts estimate that it is closer to 36% if those who have given up looking for jobs are counted. Analysts think that the government will give into union demands, but it might not be best option for the South African economy and people, many of whom will not have a job much less a pay increase.

Discussion Questions:

1. Should the South African government agree to the public-sector workers’ increased wage demands?
2. In what other ways might the increased wages hurt the South African economy? Is there any way the payment of increased wages in the public-sector might help the economy?

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