The relationship between productivity and salary increases : an exploratory study

The government of South Africa introduced AsgiSA (Accelerated and Shared Growth Initiative for South Africa) in 2006 as an attempt to evaluate South Africa's economic growth rate. The aim is to achieve a sustainable rate of real Gross Domestic Product (GDP) growth of 4.5% per annum over the period 2004-2009 and at least 6% per annum over the period 2010-2014. It was anticipated that the introduction of these measures will halve poverty and unemployment by 2014. In this exploratory study, the real growth in value added (VA) (as a micro-economic substitute for growth in GDP) was compared with the real growth in salaries and wages for 62 companies listed on the JSE Limited (formerly the JSE Securities Exchange South Africa). The real growth was calculated by means of the compound rate method over the period 2000-2005. It was found that the real growth rate in value added per employee was not significantly different from the desired GDP growth rate during the same period, and that it exceeded the desired real growth rate of 4.5% in 2002. It was further found that the real growth rate in salaries per employee was not significantly different from the real growth rate in VA per employee, except in 2002 and 2003. In these two years employees were generally underpaid compared to their contribution to real economic growth. Pool regression (longitudinal) analysis was used to examine the extent to which the real growth rate in VA per employee could be used to determine the real growth rate in salaries per employee and vice versa. It was found that the relationship between the two variables was much stronger when productivity was used as the dependent variable and salary increments as the independent variable. It was also established that the causality between the two variables was unidirectional, with salary increments preceding productivity. It is apparent, therefore, that South African employers use salary increments not to reward productivity, but rather as a driver of productivity.