Does employee remuneration dispersion in the South African economy enhance labour productivity? The Gauteng manufacturing industry as a case study

Abstract

Orientation: The paper dealt with the application of a suitable econometric estimation model or procedure to measure the relation between employee-remuneration gaps and labour productivity in the Gauteng manufacturing industry.

Research purpose: The aim of the article was to estimate the sign and magnitude of the relation between employee-remuneration gaps and labour productivity econometrically. The Gauteng manufacturing sector was used as a case study.

Motivation for the study: The empirical research was deemed necessary given the current important debate on the perceived impact and fairness of expanding employee-remuneration gaps in the South African workplace. International studies have been conducted on this particular topic but very limited empirical research has been published regarding the South African situation.

Research design, approach and method: A log-linear two-step OLS estimation was used to estimate the sign and magnitude of the relation between employee-remuneration gaps and labour productivity. Employee remuneration gap-labour productivity (ERGLP) indicator coefficients were estimated, taking into consideration employee characteristics, skill levels and business or economic uncertainty.

Main findings: The signs of the ERGLP indicator coefficients were positive in terms of all the categories, indicating a positive relation between employment-remuneration gaps and labour productivity (at varying magnitudes). The squared ERGLP indicator coefficients confirmed the existence of diminishing marginal productivity characteristics after an optimal employee- remuneration gap level.

Practical/managerial implications: It is recommended that, given the unionised nature of the lower-skilled employee segment in South Africa, greater labour-productivity gains for organisations would stem from a more dispersed employee-remuneration regime for the higher-skilled employee segment (albeit in a less uncertain business or economic environment).

Contribution/value-add: An econometric estimation procedure that can be applied to the measurement of the productivity gains of employee-remuneration gaps for different industries in the South African economy was established.