Tydskrif vir Geesteswetenskappe
On-line version ISSN 2224-7912
PADAYACHEE, Vishnu and ROSSOUW, Jannie. Remuneration trends in the public sector during sustained inflation: an economic perspective. Tydskr. geesteswet. [online]. 2010, vol.50, n.2, pp. 169-186. ISSN 2224-7912.
This paper compares the movement in the nominal and real remuneration of two selected positions in the South African public sector over the period 1984 to 2008. Over this period a divergent trend is discernible in the nominal and real remuneration of these two positions. The choice of positions in the public sector was determined by the availability of historic and current remuneration information and by the fact that the designations and responsibilities of these positions seemingly remained homogeneous over the period of comparison. South Africa has suffered considerable "job title" inflation over this period, thereby rendering numerous positions unsuitable for comparative purposes. In comparing the remuneration of these two positions in real terms; on a gross and after tax basis; and in terms of increases in prices of selected goods, this paper tests a hypothesis that cost-of-living adjustments in remuneration kept abreast of inflation and of general price increases over the period 1984 to 2008. The comparison confirms the hypothesis in one instance, but refutes it in another instance. This comparison confirms that periodic remuneration adjustments are necessary under conditions of sustained inflation to take account of cost-of-living increases. Without such adjustments incumbents would increasingly experience declines in their standards of living and would be tempted to leave the public sector for better paying positions in the private sector. Oneoff structural adjustments are required to re-align relative remuneration of positions once adjustments have not kept abreast of inflation. In as much as the remuneration of one of the groups used for comparative purposes declined in real terms (i.e. did not keep pace with inflation), it is obvious that the remuneration adjustments of this group did not take any cognisance of possible improvements in productivity. Any compensation for productivity improvements during a period of sustained inflation (albeit more moderate towards the second half of the period of comparison) as was the case in South Africa between 1984 and 2008, would have been reflected in a real improvement in remuneration over this period. Compensation for productivity improvements are outside the scope of this paper. The comparison of the prices of selected goods purchased by a typical household shows considerable changes in relative prices. During a period of sustained inflation, as South Africa suffered from 1984 to 2008 (albeit more moderate from the middle of the 1990s), price movements reflecting relative price changes are often confused with general price inflation. This impedes the ability of consumers to adjust their spending patterns to reflect changes in relative prices. Over time this inability could contribute to a misallocation of resources in an economy. The methodology developed in this paper can be used for similar comparisons of nominal and real remuneration outside the public sector. The only conditions for such comparisons are the availability of current and historic remuneration information, positions that remained relatively homogeneous in terms of job title and responsibility over the period of comparison, and inflation figures reflected in some or another price index. Likewise, the only conditions for price comparisons are historic and current price data and a relevant price index. The final conclusion is that some restructuring of remuneration in the public sector could be required to ensure the retention of suitably qualified staff. The methodology applied in this paper can be used to calculate the magnitude of structural adjustments required in the public sector to eradicate real declines in remuneration. This methodology can also be used by negotiators to calculate fair and reasonable remuneration adjustments. The fields of application of this methodology developed from the perspective of the economic science are therefore in general management, the management of human resources and organised labour.
Keywords : inflation; inflation accuracy; inflation credibility; price increases; public sector; remuneration; structural remuneration adjustments.