Low growth squeezes pay packets

Economic stagnation could prompt labour costs to become less affordable. Image: Cristovao31 Fotolia

The survey, jointly conducted by labour union Solidarity and market strategist ETM Analytics, has concluded that labour affordability has been in a seven-year slump since the global financial crisis.

Head strategist at ETM Analytics Russell Lamberti said macroeconomic output was insufficient and unsustainably low compared with the cost of labour.

"This typically leads to a phase where either business activity and output need to increase, or, if it doesn't, labour needs to be shed or wage increases limited," he said.

According to Lamberti, post-1994 saw a positive labour affordability trend as business activity was stronger, with higher labour absorption. He said until 2007 there was relatively good labour affordability but that bubble was burst by the global financial crisis and the 2009 recession.

He said though the recovery period saw a slight hike in labour affordability, this was followed by an erosion of the hike.

"This is quite concerning. I do not think it necessarily speaks only to the labour market but it is also an issue of an economic environment that is performing well below its potential," Lamberti said.

He said the economy had moved into a circular stagnation and low growth rate, which was creating pressure on the labour affordability equation.

"We are not currently as bad as we could be and certainly not anywhere near to as good as we could be," he said.

Source: The Times via I-Net Bridge