Herbert Lewis, Guest Columnist
THE GLEANER'S editorial of February 21, 2004, entitled 'Wage Cost and Economic reality', said, "It is time the Jamaican workforce gets accustomed to two per cent and three per cent pay rise as is the norm in Europe and America. This would set a psychological benchmark for future private sector
negotiations with the unions and restore a measure of common sense and economic reality to the bargaining process." Since the appearance of the editorial, there have been many critical references to the
suggestions of a two and three per cent rise in wage/salary.
We all know that one of the principal goals of unions everywhere is to achieve for workers an ever-rising standard of living more pay, more vacation, more holidays,
better pensions, improved medical coverage, shorter hours of work. As a
matter of fact, not only unionised workers, but just about everybody in the
country has a similar goal in mind for himself, the blue collar worker, the white
collar worker and the
professional in both the public sector and the private sector are constantly pressing to achieve a better way of life.
INTEREST IN 'WORLDLY' GOODS
For some people who may have little interest in 'worldly' goods, that goal may not be related to economic status. But, for the overwhelmingly majority, and
especially for those who have a continuing contact with the work-a-day world, it is. For these people, a higher standard of
living is associated with:
a) More money, or more specifically, more purchasing power, in order to be able to acquire more and better goods and services, such as housing, cars, food,
medical care, retirement programmes, and leisure time activities.
b) Fewer hours of work, whether in the form of a reduced work week or more vacation and holidays, or other paid leave.
c) Some combination of both more income and fewer hours of work.
The question often arises however, even among some union representatives as to how all of this can come about. How can everybody in the country or at least, most people experience a fairly persistent improvement in their standard of living?
Sometimes the question comes in a somewhat different form. It's given a time dimension: How long can this continue? How long can everybody keep getting more and more? Doesn't it all have to come to a grinding halt one day?
INCREASING OVERALL PRODUCTIVITY
The key to the search for this ever-growing, better life is the nation's ability to increase its overall productivity; that is to improve the efficiency with which the nation's output of goods and services, technically, it's Gross National Product (GNP) can be produced by the nation's workforce. For a variety of reasons, including advances in technology, as well as in the skill and education of the labour force, the nation's economic machine becomes more and more productive. Typically, from one year to the next, any given amount of GDP can be turned out with less effort (hours of work). Or, to put it another way, any given amount of efforts (hours of work) can yield more GDP more goods and services.
It is from such increments in GDP that the nation derives the opportunity to improve standard of living of its people. If the national 'pie' of goods and services gets larger and larger and does so at a pace that exceeds the rate of growth in the nation's population, then there will be more 'pie' for more people more 'pie' per person. This can only be a reality if there is productivity growth. There is no other way. This applies to both the public sector as well as the private sector. Critically, productivity can only be achieved by efficiency.
There is a tendency in some quarters to confuse an increase in production with an increase in productivity. The two are quite different. Since those differences are significant, it is important that the distinction be made clear. Production is a measure of the total amount which is produced. On the other hand, productivity is pretty much a measure of the efficiency with which the amount is produced. It is possible for production to increase while productivity remains unchanged or even decline.
Since the topic I am dealing with is economic growth and the standard of living, I will touch briefly on two areas which have caused much confusion at the bargaining table. The two areas are (1) wage/salary and compensation and, (2) standard of
living and living standard.
1) Although it is often used interchangeably with words such as 'wages' or 'salaries', the term 'compensation' actually has
a somewhat different meaning. 'Compensation' is generally considered to include the cost to the employee of both wages (or salaries) and fringe benefits. Very often, employees prefer to take part of the 'pie' not in pay but in fringes,
perhaps in the form of rental payment. In the process, they also make trade-offs and accept smaller increases in pay.
Whichever way it goes, these are all costs to the employer and forms a part of the compensation package. I find it necessary to explain the distinction as quite often around the bargaining table, the impression is given that employers should only be looking at the pay cheque as though the fringes come from somewhere else and not from the same source as the pay cheque.
2) The term 'standard of living' is
frequently banded about in the bargaining arena. It never gets defined, however, because, in reality, it means different things to different people. In a sense, I believe it is impossible to measure. But it would be well to deal briefly, with the
tendency on the part of some people to confuse the 'standard of living' with the 'cost of living'. These are two distinctly different concepts, although both are important in negotiations. The more
clearly they are understood, the more effectively they can be used in the support of bargaining.
The 'standard of living' refers to the way people live. The 'cost of living' refers to how much it cost them to live that way. The cost of living is a reflection of the price people have to pay in order to enjoy their life style, or living standard. It is our standard of living that we hope to improve through collective bargaining.
In the context of what is happening in Jamaica today, can the editorial reference to three per cent and four per cent really improve one's standard of living? The jury is out.
Herbert Lewis is an industrial
relations specialist and a past president of the Jamaica Employers' Federation.
