As it appeared in the Sunday Standard, Botswana on Sunday Oct 28, 2012 edition.
Supply of Labour
Industries (be they by locals or foreigners) do not exist for the sole purpose of employing citizens. Hard as it may be to accept this point, it really is not that difficult to see the reason.
What is harder to see is an unemployed economy will affect the growth of his industry. Not immediately. But eventually it will. Think most political revolutions. It is a sign of a vicious circle.
In last week’s edition of this column, we uncovered two factors that influence persistent unemployment in any country. These were:
- The rates of growth of demand for labour (by employers) vs.
- The rates of growth of supply of labour (by employees)
As the supply of labour (rising birth and migration rates) persistently exceeds demand, unemployment grows. This does not mean that our attempts at correcting the problem will not be successful. They will not be successful for the long-term.
On the other hand, as the demand for labour (number of new jobs created) persistently exceeds the supply, unemployment would decline (and literally disappear by itself).
This week, we explore the demand – a side commonly used by most of us when focussing on the problem of unemployment. In the next edition of this column, we will get around to supply.
But before we continue, what does the picture of growing demand for labour look like? We might say, well, that is obvious. We would see companies and industries recruit and persons as employees of their organizations. That’s where most of us would stop.
But that would not be quite enough here. We should see increasing numbers employed for the long-term. Possibly even for decades. And it happens primarily in the private sector. They are key. If these three conditions do not happen, then real and deliberate growth in demand for labour has not quite happened. Yet.
But what influences the demand for labour to grow consistently (rather than ad-hoc)?
It would require industries and the country to post a healthy growth of its income margins or profits. Year-on-year.
Margins / Profits = Level of Revenue Earned – Level of Costs Incurred
This difference needs to grow sustainably. Where revenues grow and costs decline, the industry is well positioned to create new jobs each year and pay for higher wages in other years. The reverse is also true. When the margins are negative, we would face sustained unemployment.
What would cause the margins to grow sustainably for any industry?
Asking this question is deliberate in helping the mind steer itself to the inevitabilities.
Does sustainable growth of margins happen because we are able to apply “do more with less” strategy, really well? Or, is it because sales have picked up for that industry. Well, yes, partly.
However, here’s the inevitable.
The extent to which we see sustained growth of margins depends on the extent margins or profits grow across ALL the three levels of industries in any economy, i.e. primary, secondary and tertiary industries. These three share a very tight systemic relationship!
As we take care of the whole, not parts of the economy, the nation grows. We all know that. AndI know we can turn this knowledge around with our hands and feet.
So what causes sustained systemic growth of all three types of industries?
Think tomato sauce. The cost of manufacturing and eventually retailing that sauce would depend on the cost of the transport and distribution systems (secondary industries) needed to transport the raw materials to the factory or retail sites as well as the cost of producing the raw material itself (i.e. from seed to fruit by the farming industry).
The transport industry, in this regard is secondary to manufacturing while farming of tomatoes is primary to both transport and manufacturing.
Should however, the costs of the primary and secondary industries for each unit of product produced increase over time, the tertiary industries would not be able to reverse those costs, much less grow without incurring further costs and will have their work cut out for them to stay afloat, much less see their margins grow in sustained ways. That is the reality. The experience will otherwise be like juggling balls. It will be hard to take our eyes off them because we do not know when they will fall.
When these costs are passed on to the customers or citizens, it makes it harder for them to find ways to fund continued private sector development efforts. Here we have now come full circle.
In most cases, the primary industry refers to raw material production, in particular crop production. As we grow our raw materials (as we have achieved with sorghum production), its secondary (farm and brew trucks) and tertiary (brew production and retail) industries will begin to grow as well.
Just as the white farmers in South Africa in the primary industries (vegetables, fruits, dairy and livestock production) have done for the Chinese and the Indians in the secondary and tertiary industries there (as well as here in major supermarket chains). This relationship, however, did not happen overnight. It took almost one hundred and fifty years in the making in South Africa (and not forgetting two centuries before that in India).
So for a nation to thrive (not survive), think the root of a plant. When the root thrives, so does the plant. When it dies, so will it and the other healthy roots around it will suffocate the plant out. Removing the top of the plant will not cause it to go away. The root will bring it back.
I am sure you see it! When the profit margins do not grow for all of the three industries, the number of new jobs created does not grow. Instead, unemployment grows.What is the implication of these to employment, you ask?
Where are we today as a nation on this graph?
Which industries are dominant for the nation? Which ones are not? Which industry do you see as driving the others? Would you like to be a part of or lead from that seat? I am sure you can!
What would cause the health of primary industry or production of raw materials to grow over time? This will be the subject of another column. But till then, I wish you, happy thinking and discussing.
So is unemployment the real problem or could it just be the tip of another problem? The iceberg. How do you see this issue? Go forward another twenty years from now. What could these trends look like then? Could this possibly affect the sovereignty of a nation? For any nation?
The 3rd instalment in this three part series of this article will appear in the next edition of this column. It will explore the supply side of the equation of labour and unemployment. Watch this space.