A Voice, crying in the Wilderness. Apology

 By Bruce Danckwerts

I promised to write about Population Growth, but in fact I must make two important apologies.

The first is that my articles appeared in the wrong order. I had written two more on the subject of the Minimum Wage and they should have appeared before the one on the Dual Currency Economy. One of those articles on the Minimum Wage (the second) discussed, in more detail, why Zambia needs to find 190,000 new jobs this year. I warned that it was this fact that meant I would write about Population Growth in the future. As you had not yet seen that second article by the time my fourth was published (on the Dual Currency) my promise to write about population must have come as a bit of a surprise.

The second apology is more serious, and that is that I have decided to stop writing these articles. I started to write them without discussing them with my wife, which was wrong -Naughty Naughty as we say. She is worried that they may get me into trouble and that they may detract too much from the running of this farm, which is still in a very precarious financial state. Therefore, much as I believe the issues facing Zambia are huge and that these issues need a wider debate (than has happened in the past) I have to agree with my wife that I am not the most suitable person to lead that discussion.

I am sorry but below are the two articles that were somehow skipped:

A Voice, crying in the Wilderness. The Gini Coefficient

 By Bruce Danckwerts

I started this series last week with a quick discussion on the new Statutory Instrument on the Minimum Wage. There are two subjects on which I need to expand.

The first is the growth in new jobs. Very roughly the Zambian population had a 2.8% annual growth rate between the year 2000 and the year 2011 and a growth rate of 2.5% between 1990 and 2000. We now estimate that our population stands at 13.2million people. It is relatively easy to use these three numbers to work backwards and calculate the annual growth in the population. Such a calculation shows that the net gain in population back in 1992 was about 194,000 people. (I am quoting all these figures from memory – they may not be exact, but they are accurate enough for our purposes.) So there are about 194,000 twenty year olds who will be looking for jobs this year. There are actually more school leavers than this, but the net gain in population back in 1992 is the gain in births over deaths; this will be approximately the same figure as the increase in those seeking employment in 2012 less those who are retiring. (In fact we can use the same technique to work back to 1957 when most of the people who are retiring this year were born – a figure of about 79,000.) This means that the task of creating enough jobs is actually more daunting because a retired person retires with all his experience and has to be replaced with a young worker with none. This means that something like 79,000 of the best educated school leavers will be employed (to replace those who are retiring) and a further 190,000 new jobs will have to be created.

As I said last week, the vast majority of these 190,000 job seekers will be poorly educated and so will be looking for work in precisely that part of the employment sector where this Minimum Wage applies. Therefore this sharp increase in the Minimum Wage will make it very much more difficult for these seekers to find work. A large household with perhaps 4 domestic workers will very likely be REDUCING the number of staff; a small household may reduce from one full time worker to one part-time worker. In Agriculture, where the wage increase has been nearly 400% (on an annual basis) the pressure to reduce the number of workers will be acute. Any organisation (large or small) is very unlikely to take on a new worker while laying-off staff with several year’s worth of experience.

Next year, the same mathematics suggests that we shall need another 200,000 extra jobs.

What do these figures imply for the Gini Coefficient – the measure of Income Inequality? Those readers with access to the Internet can find out more, but countries with a low coefficient (like Japan and Denmark – 25) tend to be much more stable than those countries with high income inequality (Haiti 60 and South Africa 67). Interestingly, the country with officially the highest inequality is Namibia at 74, yet Namibia seldom makes the headlines and is not associated with social unrest. Therefore, it is not the actual level so much as the CHANGE in the level of income equality that is likely to make people feel their poverty more keenly. The Internet will also provide you with instructions on how the Gini Coefficient is calculated and I calculated it for my farm. I was surprised to learn that it was 35 – about the same as the UK and France, better than the US. (I have not found a figure for Zambia.) Now I can take that data that I used to calculate the 35 index and I can adjust it according to this new Statutory Instrument. Assume I somehow manage to increase the money that I spend on wages by 5% (I will need to come back to this in future articles) and that all that 5% is spent on the workers that I keep on at this Minimum, (there will be no spare money with which to pay my more senior workers an increase) then, not surprisingly, the Gini Coefficient of those STILL IN EMPLOYMENT improves. But I need to calculate the coefficient including all of those workers that I shall need to lay off – and then the coefficient gets worse. In fact it increases to 42.

The conclusions from these calculations are reason enough to question this Minimum Wage, but there are other reasons, which I shall discuss next week.

 

A Voice, crying in the Wilderness. Squeezed Out

 By Bruce Danckwerts

Last week’s article discussed two of the major reasons why a sharp increase in the Minimum Wage is bad for a country, especially such a country as Zambia where unemployment is already high; where we have to create a proportionately large number of new jobs and where income equality is already deteriorating rapidly. I promised to discuss a few other reasons why this sharp increase in the Minimum Wage will be a disaster for Zambia.

I believe the next most important reason why this Minimum Wage will be bad for the Poor in Zambia is that it will deny them the opportunity to take the vital first step up the employment ladder. For a young citizen, who, through no fault of her own, has received a very poor level of education, getting that first job is crucial. Having one’s own income is a great boost to self esteem and morale, but it also gives one a precious opportunity to learn skills that will enhance one’s prospects in the years to come. No employer can teach a person useful skills if that person is not actually employed. Some of these skills may be as basic as coming to work regularly and on time, but almost every organization will soon be training their workers in such skills as computers, simple mechanics, driving and the various artisan skills of carpentry, plumbing and electricity.

Then comes the fact that, a sharp increase in the Minimum Wage will squeeze out the opportunity for an organization to reward those employees with more valuable skills. For most of my working life, when I decided to increase wages, I would apply the same increment across the whole board, from the lowest casual worker to the highest assistant manager. This allowed me to maintain the relative value of the better workers. I was also able to reward those people who made a material contribution to the success of the business with a suitable bonus. (There is an 80:20 principle that reminds us that 80% of a company’s success is often due to the efforts of 20% of the people. These people deserve recognition and reward.) Since the sharp increase in the Minimum Wage (initiated by the previous government but carried to extremes by the current one) the ability of all organizations to maintain these salary differentials and motivation bonuses has been eroded. There simply is not enough money left to reward the better workers.

Related to this is the fact that, as wages have been forced upward, the proportion of costs that are absorbed by salaries has been growing ever higher. In my own case, the proportion of Labour costs has been growing steadily from about 23 percent in 1993 to 35% in 2011. If this Minimum Wage goes through (and it represents a 400% increase on the 2011 Agricultural Wage levels) then Wages would absorb ALL our income – there would be nothing left to pay for other inputs such as fertilizer, diesel or machinery repairs. More importantly (in the context of high unemployment) there will be no money left with which to expand the business, with which to create more jobs. This stifling of company growth will stifle job creation at just such a time in Zambia’s development when job creation is so crucial.

If this Minimum Wage is so contrary to the interests of the Poor (as I have argued during the last three weeks) is there nothing that the government can do to help? Of course not! There is a great deal that can be done, but many actions will, in themselves, have quite small impacts. Although their effects will be subtle, the combined accumulation of these various policies will eventually have a lasting effect on reducing poverty, of improving income equality. I will come back to these in future articles but they range from slowing population growth and eliminating corruption (at the big end of the scale) to taking steps to increase the consumption of roller meal (rather than breakfast meal) at the low end of the scale.

I hope to return to the question of the Minimum Wage (once some enlightening debate has developed) but, for next week, I shall re-visit the other Statutory Instrument that has caused a flutter recently, the one on the parallel use of the dollar in the Zambian Economy.

 

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