By Emmanuel Zvada
THE cost of living and the cost of labor are numbers that you need to understand as an employer or employee.
Businesses use the cost of labor to forecast profits, and individuals can use the cost of living to determine where to live and how to live.
I have been following the continuous salary increases from various NECs (National Employment Councils) due to an increase in the disconnect between the cost of living and the cost of labor which is the salary in Zimbabwe.
Believe me, this is actually a very difficult situation because the cost of running a business, especially in the local currency, labor costs and cost of living are very disparate.
What is the cost of living?
Cost of living refers to the amount of money needed to maintain a standard of living, taking into account basics like housing, food, clothing, utilities, taxes, and health care.
In another way, the cost of maintaining a certain standard of living is what we call the cost of living.
It is generally more expensive to live in large cities than in small towns, with the cost of living being highest for inner-city residents.
In other words, it is the cost of maintaining a certain standard of living.
Cost of living calculations vary depending on who performs them, but in general, the most widely accepted cost of living measure is the consumer price index.
The cost of living is calculated by taking the price of some of the goods and services that everyone needs, such as food and housing.
Along with this, your income and budget determine how much of these goods and services you can afford.
What is the labor cost?
Labor cost is the sum of all wages paid to employees, plus the cost of benefits and payroll taxes paid by an employer.
It can also be defined as the amount that a business or organization spends on its employees.
In most companies, the cost of labor must correlate with the cost of living to avoid underpaying employees.
When the salary you receive meets living expenses, things will be normal, but when what you get cannot meet your needs, that is indeed a red flag.
In some cases, labor cost refers to the difference in wages or labor prices for a job from one location to another.
What drives up the cost of living?
An increase in the cost of living can be driven by a number of factors. 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 behind recent increases in the cost of living.
Simply put, inflation is the reduction in what you can buy with the same amount of money from one period to the next, usually over a period of one year.
The rising cost of living eats away at the little disposable income of workers and many people who are already suffering under the weight of unemployment.
The result will be a severe decline in living standards and extremely high levels of poverty among the overwhelming majority of Zimbabweans.
Effects on employers and employees
Cost of labor exceeded by minimum cost of living.
The current situation is dire and everyone knows that most employees and some employers are seriously disabled and we are facing an existential crisis, a real crisis of existence.
It is very important to point out that currently the cost of labor seems to be unfair as it lags behind the cost of living.
In fact, when the normal cost of living has exceeded the cost of labour, employees are all the more affected if they become incapacitated.
Businesses in various industries are failing to keep up with these ever-increasing costs. Passing the baton to the customer by continually raising prices to maintain profit margins has become the norm.
Today, the drop in labor income brings with it a multitude of problems such as growing inequalities, social exclusion, an increase in crime or even social and political unrest and mass protests.
There is a growing gap between employee expectations and the reality of what organizations can reasonably offer them, which could prove toxic if left unaddressed.
What can we do then?
This rising cost of living is digging a deep wound into people’s lives, hurting young and old, employed and unemployed, deeply even for people accustomed to pain in recent years.
In light of Zimbabwe’s current economic instability and large informal sector, the author believes that legislators should gradually move away from a bottom-up minimum wage approach towards a bottom-up living wage approach to protect employees (both in the public and private sectors) from exploitation and perpetual poverty.
The living wage model is a different way of calculating basic needs.
Living Wage calculates the minimum employment income required to meet a family’s basic needs while maintaining self-sufficiency using these cost elements and the adverse effects of income and payroll taxes.
Cost of living adjustments are key
Some companies incorporate salary adjustments into their compensation structures to offset the effects of inflation on their employees.
A cost of living increase is a salary increase intended to maintain the same purchasing power of an employee’s salary during a period of inflation. Without an increase in the cost of living, the declining value of the dollar would leave workers with less real money in their pockets.
Employee compensation has been eroded, it is known that at this point most employees are struggling to make ends meet given the devaluation of their wages amid rising inflation.
To cope with cost-of-living pressures and maintain compensation sustainability, it may be necessary to protect employees by providing a cost-of-living adjustment.
Productivity should be linked to wages
If an entity operates and earns its revenue in foreign currency, we have no problem if it also pays its employees in foreign currency, but if it generates revenue in local currency, it will be a problem. Directly linking wages to productivity will ensure that the employee is continually rewarded for their hard work, which drives them to produce more profit for the company. The relationship between productivity and wages is a central issue for a fair distribution between labor and capital. Productivity can be defined as the amount of goods and services (output) produced in the economy for each unit of work. For example, output per worker and output per hour worked are both measures of productivity.
When output per worker increases, the contribution of workers to the firm’s revenue increases, which also leads to an increase in the demand for workers.
A very important aspect of work is for people to earn money, yes I mean money which is the store of value. They need money for food, rent, basic things and other uses too. When you receive your salary, how much you spend each month matters. The problem or a mismatch now arises when what you get is very low to not even accommodate the basics.