By Emmanuel Zvada
THE cost of living and the cost of labour are figures you must understand as an employer or an employee.
Companies use the cost of labour to predict profits, and individuals can use the cost of living to determine where to live and how to live.
I have been following the continuous increases in wages from various Necs (National Employment Councils) due to an increase in the disconnect between the cost of living and the cost of labour which is wages in Zimbabwe.
Believe me, it’s actually a very difficult situation as the cost of operating a business especially in the local currency, the costs of labour and the cost of living are greatly mismatched.
What is cost of living?
Cost of living refers to the amount of money required to maintain a standard of living, accounting for basics like housing, food, clothing, utilities, taxes, and healthcare.
In another way the cost of maintaining a certain standard of living is what we call cost of living.
It is usually more expensive to live in major cities than in smaller towns, with the cost of living being highest for downtown residents.
Simply put, it’s the cost of maintaining a certain standard of living.
Cost-of-living calculations vary based on who is performing them, but in general, the most widely accepted cost-of-living measure is the consumer price index.
Cost of living is calculated by taking the price of a portion of goods and services everyone needs, such as food and housing.
Along with that, your income and budget determine how much of these goods and services you can afford.
What is cost of labour?
The cost of labour is the sum of all wages paid to employees, as well as the cost of employee benefits and payroll taxes paid by an employer.
It can also be defined as the amount that a company or organisation spends on its employees.
In most companies’ cost of labour has to corelate with cost of living to avoid underpaying employees.
When the wages you get keep up with living expenses things will be normal but when what you get can’t cater for your needs it is a red flag indeed.
In some instances, cost of labour refers to the difference in pay or labour price for a job from one location to another.
What causes the cost of living to go up?
An increase in cost of living can be driven by a number of things. Zimbabwe’s unstable economy has made it too expensive for people to buy even basic goods and services from supermarkets and other businesses.
High levels of inflation are the driving force behind recent increases in the cost of living.
Put plainly, inflation is the reduction in how much you can buy with the same amount of money from one period to the next, generally over a one-year period.
The rise in the cost of living is eating into the little disposable incomes of workers and a lot of people who are already suffering under the weight of unemployment.
The result will be a serious decline in the standards of living and tremendously high poverty levels among the overwhelming majority of Zimbabweans.
Effects to employers and employees
Cost of labour overtaken by the minimum cost of living.
The current situation is dire and everyone knows that most employees and some employers are severely incapacitated and we are facing an existential crisis, a real crisis of existence.
It is very crucial to highlight that currently the cost of labour seems to be unfair as it is lagging behind the cost of living.
In actual fact, when normal cost of living has overtaken the cost of labour, employees are affected more as they will be incapacitated.
Businesses across various industries are failing to keep up with these ever-increasing costs, hence passing the baton to the customer by continuously pushing up prices to maintain the profit margins has become the norm.
Now the falling labour earnings produce a host of problems such as growing inequality, social exclusion, a rise in crime or even social and political unrest and mass demonstrations.
There is a widening gap between employee expectations and the reality of what organisations can reasonably offer them, which could prove toxic if left unaddressed.
What then can we do?
This rise in the cost of living cuts a deep wound in the lives of people, harming the young and old, employed and unemployed, in a profound way even for people accustomed to pain in recent years.
In light of Zimbabwe’s current economic instability and the large informal sector, the author believes that the legislature should gradually move away from the minimum wage base approach towards a living wage base approach to protect employees (both in the public and private sectors) from exploitation and perpetual poverty.
The living wage model is a different way to calculate basic needs.
The living wage calculates the minimum employment earnings required to meet a family’s basic needs while maintaining self-sufficiency using these cost elements and the harsh effects of income and payroll taxes.
Cost of living adjustments are key
Some companies build salary adjustments into their compensation structures to offset the effects of inflation on their employees.
A cost-of-living raise is an increase in pay that’s intended to keep the buying power of an employee’s salary the same during a period of inflation. Without a cost-of-living raise, the declining value of the dollar would leave workers with less real money in their pockets.
Employee remuneration has been eroded, it’s known that at this stage most employees are struggling to make ends meet given the devaluation of their salaries amid rising inflation.
To tackle cost-of-living pressures and maintain sustainability of remuneration it may be necessary to cushion employees by giving them a cost-of-living adjustment.
Productivity should be linked to wages
If an entity is operating and earning its revenue in foreign currency, we have no problem if it also pays its employees in forex, but if it is generating revenue in local currency, it will be a problem. Directly linking wages with productivity will ensure that the employee is continuously rewarded for hard work, which drives him to produce more profits for the business. The relationship between productivity and wages is a central issue for fair distribution between labour and capital. Productivity can be defined as the amount of goods and services (output) produced in the economy for every unit of labour. For example, output per worker and output per hour of work are both productivity measures.
When output per worker increases, workers’ contribution to the firm’s revenue increases causing demand for workers to increase also.
A very important aspect of working is for people to make money, yes I mean money which is the store of value. They need money for food, for rent, basic things and other uses too. When you get your salary how much you spend every month matters. The problem or a mismatch now comes when what you are getting is very low to not even accommodate basic commodities.