This blog connects the dots of the graphic in our previous blog on the symptoms
of the current reality.
The company pays employers to manage the company as an engine of prosperity. Since prosperity increases the quality of life and the current quality of life for most employees is low, employers feel they must motivate employees, by increasing their remuneration. But employers also answer to shareholders who expect an increase in their prosperity. One way that is often followed is to reduce operating expenses. In a labour-intensive environment, the wage bill is a significant part of the operating expenses. Thus, employers feel they must reduce employee remuneration.
Increases
Employers cannot increase and decrease employees’ remuneration. Because employers are human, they sometimes feel obligated to increase employee rewards, regardless of the pressure to do otherwise. Giving in to the desire to help employees by increasing their remuneration in the short term leads to the cost per employee increasing. Because employers must control operating expenses in the long term and because retrenching employees reduce costs, employers often retrench employees.
In the depressed South African labour market, finding a new job is stressful. The prosperity of employees, more specifically ex-employees, decreases, as a result. The plight of their ex-colleagues causes growing frustration amongst employees. They blame the company for the continued low prosperity amongst the working class.
Employers do not give in to all demands for increases, causing varying levels of prosperity amongst the employees. Employees do not understand the rationale behind the employer’s decisions because the employers do not share all company data with the employees. Not surprisingly, employees are unhappy with their relative prosperity. In most working environments, employers take disciplinary action. Employees feel that disciplinary action is often unwarranted and feel mistreated. Understandably, employees become demotivated.
Productivity
Low motivation leads to sub-optimal work rates, which result in low employee productivity (Throughput divided by Operating Expense). Since the cost per employee increases, operating expenses growing faster than throughput. The prosperity of the system depends on increasing throughput, but operating expenses grow more than throughput leading to prosperity, reducing more and more. Considering that prosperity is motivational, the increasing reduction in prosperity leads to even lower motivation levels. We have a negative reinforcing loop!
Our environment is a labour-intensive system, and because installed capacity is higher than the current demand, employees determine productivity. We already know that productivity is low due to low motivation. Employers expect throughput to increase, which does not happen. Hence, employers often take further disciplinary action. There is constant conflict between employers and employees because of disciplinary action and mistreatment. The conflict is further fuelled by employees blaming employers for the gap in prosperity together with the inequality amongst the employees, which they feel should be smaller. The constant conflict further enhances employee frustration.
Operating Expenses
Because operating expenses grow faster than throughput and a relative increase in throughput is needed to give better wage increases, employers cannot offer better increases. Not knowing all the facts, employees feel that employers can offer more. The considerable gap between employee demands and employer offers cause wage negotiation to be a long process. Unions represent employees during these protracted wage negotiations and get strike certificates. Impatient and frustrated employees vote in favour of strike action to force the employer’s hand in the talks. The resulting strikes are often violent. Violent strikes are aimed at employers, which destroy production capacity. In an environment of cost savings, the repairs to production capacity further reduce prosperity.
Downward Spiral
Employee demands often increase cost – meaning higher wages. Because employers must reduce employee rewards, and the inflation rate is higher than the wage increases, the wages do not grow in real terms. Everyone knows that money is required to increase prosperity and that wages are the surest way to earn money.
The conclusion is that prosperity reduces more and more because wages do not grow in real terms.
Andreas A Landman