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Differentiation within the South African Clothing Industry: Implications for Wage Setting and Employment

Literature › Works

Nicoli Nattrass; Jeremy Seekings (2012). Differentiation within the South African Clothing Industry: Implications for Wage Setting and Employment. CSSR Working Paper (Sustainable Societies Unit), presented at 'Towards Carnegie III' conference, University of Cape Town, 3-7 September 2012. Centre for Social Science Research, University of Cape Town.
Type working paper
Scope Post-1994 South African economy
Method mixed
Period studied 1905–2011
Regions Cape Town, Johannesburg/Witwatersrand, Durban/KwaZulu-Natal, Newcastle, Free State, Lesotho, Swaziland
Themes manufacturing industrial policy, labour markets wages, bantustans removals influx, unions strikes, inequality poverty unemployment, business and state, transition post apartheid
Citation key nattrass2012a

Argument

The clothing industry is not monolithic: a higher-wage, more capital-intensive, mostly metro-based segment serves upper-income niche markets, while a low-wage, ultra-labour-intensive segment (mainly in non-metro KZN and the Free State) makes basic garments for mass markets. The bottom segment competes with imports only by paying below the legal minima, and the two segments co-exist at different wage levels, so there has been no single 'race to the bottom'. The authors use industry history, official manufacturing survey data, NBC data and interviews to show that the post-2002 National Bargaining Council's drive to compress regional wage differentials threatens jobs that would simply migrate to China, Lesotho and elsewhere. They also argue that the 'move up the value chain' policy consensus is unrealistic for these firms, and that excluding low-wage labour-intensive work is a value judgement as much as an economic claim. The apartheid-era history is used as background: regional wage differentiation and decentralisation incentives were integral to the industry's development.

Evidence and method

Secondary literature (Barker 1962, Bell, Hart and Todes, Altman, Robbins et al., Morris and others), Statistics South Africa 2008 manufacturing financial survey, Labour Force Surveys, NBC (KZN office) firm data, DTI employment series, gazetted minimum wages, and interviews with industry informants in Cape Town and Newcastle (2011-12).

Findings

  • The clothing industry's regional wage differentiation dates from its origins and was driven by relocation to smaller towns, where the workforce was mostly African. (p. 5)

    An investigation by the Wage Board found that, in 1955, the average weekly wage on the Witwatersrand was between two and three times the wages in the new industrial areas.

  • Decentralisation incentives and exemption from minimum-wage setting fuelled clothing growth in and adjacent to the bantustans. (p. 5)

    clothing employment grew rapidly in decentralized industrial areas within and adjacent to the bantustans, aided by government incentives (1954-1996) and exemption from the systems of minimum wage-setting

  • Mid-1950s evidence shows higher-wage metro firms were more profitable, indicating different non-competing market niches. (p. 7)

    in the mid-1950s, profit rates were 6.5 times higher in Johannesburg than in non-metro ('other') areas, despite wages being three times higher in Johannesburg

  • Clothing was the vanguard of import-substitution industrialisation, with employment peaking around 170,000 and moving out of the Transvaal. (p. 6)

    Total wage employment in the clothing industry rose to 170,000 in the early 1980s, and remained close to this level into the early 1990s.

  • Post-apartheid bargaining raised minimum wages most in the lowest-wage areas, compressing regional differentials. (p. 14)

    In 1997, the gazetted minimum wage in Newcastle (under the wage determination) was 38 percent of the minimum in Cape Town. In 2003, when the NBC first set minima in Newcastle, the ratio was raised to 52 percent.

  • Tariff cuts, Chinese entry and the rand's appreciation compounded the wage pressure on the industry. (p. 10)

    the fall in tariffs on imported clothing from 90 percent in 1996 to 40 percent in 2002

  • Clothing is extremely labour-intensive, with very low capital per job compared with manufacturing as a whole. (p. 18)

    Whereas it took R150,000 of capital equipment to provide a job in manufacturing as a whole, in 2008, the corresponding amount was R28,000 in textiles, clothing and footwear, and a mere R10,000 in the clothing industry

  • Profit margins in clothing are extremely thin, leaving little room to absorb wage increases. (p. 19)

    whereas the average profit margin (net profit after tax / total income) was 8 percent in 2008 for manufacturing as a whole, it was only 1 percent for the textile, clothing and footwear sector, and a mere 0.5 percent for clothing.

  • Lost formal jobs have not been replaced by informal clothing employment. (p. 16)

    The LFS data, like the NBC and DTI data, show that employment has been on a trend decline since 2003-04. This suggests that jobs lost in the formal sector have not been compensated for by rising informal clothing employment.

  • The bottom-end firms' piece-rate wage model is effectively criminalised by NBC agreements. (p. 29)

    Through extensions, the NBC thus imposes wages suitable for the top end of the clothing market onto the bottom end, and rules out a crucial dimension of their wage and business model

  • The authors reject the 'race to the bottom' claim on historical grounds. (p. 30)

    there was no 'race to the bottom' prior to the NBC being formed in the early 2000s. There are no good economic or wage-related reasons why wider regional wage differentiation should not continue.