Mixed messages have emanated from the labour market in the past year. For the first time in six years, employment numbers started rising. But so did wage demands and ultimately nominal unit labour costs.
Labour productivity, which had been improving at more than 4%/year until 2000, began to grow at a slower rate in 2001 and productivity improved by a less impressive 2,7% in the third quarter of 2002.
A buoyant manufacturing sector last year experienced the opposite trend, with its labour productivity advancing by a much higher rate of 6,7% year on year during the third quarter.
That may change with the more recent deterioration in the manufacturing sector's fortunes. Profitability of the sector has come under pressure from a stronger rand and there are signs that the sector's growth may slow down if the world economy continues to stagnate.
Thus SA's biggest challenge for 2003 will be to hold on to the employment gains it made in late 2002 because, at an estimated 30,5% of the economically active population, unemployment remains the biggest economic bugbear.
According to Statistics SA's "Survey of employment & earnings in selected industries" at the end of last year, the number of employed rose 1,2% compared with December 2001, with 54 285 people placed in new jobs. The rise continues the gradual upward trend in the nonagricultural sectors witnessed since May 2002 .
But as the Reserve Bank pointed out in its March Quarterly Bulletin, it may be "far too early to conclude that the tide has finally turned".
The manufacturing sector, SA's second-largest employer, may have already started cutting back on jobs . According to Investec Asset Management's purchasing managers index (PMI), the employment index component of the PMI declined 5,2 index points in April to a seasonally adjusted 42,9.
It's a reversal of last year's trend, when the manufacturing sector, which generates 27,4% of the economy's employment, took on 2,3% more employees in December 2002 than the year before.
Also, with rising wage demands and smaller improvements in productivity, labour is becoming more expensive. The average nominal remuneration in the formal nonagricultural sectors of the economy accelerated by 14,1% in the third quarter of last year compared with 9,2% in the previous quarter and then moderating to just over 7% in the final quarter. Those pressures will continue as SA enters the wage negotiating season.
