THE LIKELY escalation in the public sector wage bill will put huge pressure on the ability of the Government to close the fiscal deficit. One clear outcome of the wage hikes that are taking place will be wage inflation, in the absence of mandated productivity clauses to pay for the wage/salary increases.
As the chief employer in the economy and a major influence on setting the pattern for determining the level of wage increase in the private sector, it is well-known that the percentage increases that the government agrees to, can dictate whether wage increases rise by single-digits (less than 10 per cent) or double-digits.
With the erosion in their real incomes over the life of the previous Memorandum of Understanding, many bargaining units are now trying to reclaim some of their eroded purchasing power by asking for steep wage increases that are only going to create wage inflation and erode the long-term competitiveness of the economy, which was not that competitive to start with.
FISCAL ADJUSTMENTS
The likelihood of a general election in the near future means that the political parties will not want to be seen as anti-worker and will, therefore, have to make the necessary fiscal adjustments in the next year to close the wage gap. This means unless we find ways of increasing productivity then the real economy will adjust to this wage inflation with an exchange rate depreciation that wipes out any short-term wage gains. The other consequence is a steep fiscal tax package that tries to meet the rise in expenditure, but is only likely to be implemented when the next general election is over.
The absence of clear productivity clauses in the current wage negotiations means that unless there are external gains (e.g significant rises in demand for the products or services), the outcome is likely to be a long-term decline. We are already seeing it in various areas of Government service although you may not recognise it as such.
SECURITY
State security is being supplemented by heavy use of private security and electronic safety measures. Public transportation is being supplemented by private (illegal robots) and personal transportation. Even in areas where the Government workers may believe that they have a monopoly bargaining position (as in the case of quasi-government bodies and statutory agencies) they are being by-passed by the informal and illegal channels to get around the formal processes and procedures.
The inclusion of training and educational components in the new MoU is all to the good, but while this will pay off in the future, we also need to insist on measurable productivity gains where possible for the next two years.
