Answer to Question #194681 in Microeconomics for cfgr

Question

A brief explanation of the public wage bill in SA –(Its advisable to illustrate trends by means of

graphs and tables showing

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Why is it a problem in SA

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In the discussion provide indication on what made it to be so large

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How it can be controlled

Answer 1

What is the Public wage Bill in SA?

The salaries of 1.2 million civil servants, including national and local authorities, doctors, teachers, and police, account for about a third of South Africa's budget. This is the public wage bill.

According to plans announced, it will spend about 629 billion rands ($41.3 billion) on public sector salaries in the fiscal year ending next month, rising to 697 billion rands by 2022/23.

Why it is a problem?

To help curb a will budget deficit, South Africa says it will cut public sector salaries by 160 billion rands ($10.5 billion) over the next three years.

The government's budget cuts must be negotiated with trade unions, which have promised a war. Here are some of the reasons why the government's wage bill is a challenge.

What made it so large?

The governing African National Congress (ANC) aimed to help millions of poor black citizens after apartheid ended in 1994, including by placing them in government positions. Around 2007 and 2019, government spending on public sector wages more than tripled.

The biggest explanation was pay agreements with strong unions that were affiliated with the ANC which could close down areas of the economy if they didn't get their way. Over the last 12 years, civil servants' wages have increased by about 40% in real terms, while their number has increased by 170,000. High-skilled occupations, such as physicians and teachers, had the highest pay growth.

How it can be controlled?

The government hasn't done anything much yet. Cuts may be made, according to officials, by modifying cost-of-living increases and suspending automatic wage progression. Previous attempts to reduce compensation rates, such as providing early retirement, have failed. Some experts believe the government will be unable to implement the promised cuts because the ANC relies on its labor partners to help mobilize support for the upcoming municipal elections. Even if the cuts are implemented, the budget deficit will remain high next fiscal year, at 6.8% of GDP, and the debt-to-GDP ratio will also reach 70% by 2023. Many observers believe Moody's would downgrade the country's last investment-grade credit rating to "junk" status this year as a result of the poor metrics. Despite slow economic growth, consistently high unemployment, and a weak tax base, South Africa's problem is that it has too little revenue to spare.

The figure below shows changes in employment across the public sector from 2010 to 2020.