SETP No. 14 The Economic Value of Incremental Employment in the ...

ii) there are benefits to those sectors on which the construction industry itself relies -
most notably the building materials industry.
1.12 In other words, there are both backward and forward economic linkages which
may justify increased spending on labour in construction. The key question is
what such linkages offer in terms of aggregate economic benefits? If the benefits
of using more labour are strong, the government can take a policy decision. As a
key client of the construction industry, it may decide to reap the economic
advantage of employment by means of paying a financial premium for a
construction process which substitutes more labour for equipment than the
industry itself would otherwise choose.
Scope of Work
1.13 The scope of work is determined by the Terms of Reference: The research to be
undertaken will aim to provide an answer to the following question:
• what - if any - financial premium per unit of expenditure on
construction is economically justified for the substitution of labour
for equipment?
1.14 The research will focus on the fronts of both labour and equipment, as indicated
below.
Labour Economics
1.15 The starting point for work on this front will be to analyse regional differences in
wage levels in relation to prevailing costs of living (in terms of a standard
consumption 'basket'). What, if any, are the real differences in wage levels (or
earning levels among those paid on a piece-work or task-work basis) in
construction -say, for (a) a skilled bricklayer, and (b) an unskilled labourer - in
Western Cape, Eastern Cape and Northern Provinces?
1.16 At the next level of detail, the research will explore the likely primary directions of
expenditure among those employed under a labour-intensive policy framework
set by the government. What shares of incremental income are likely to be spent
on food, clothing, house improvements and the like?
1.17 The outcome of the analysis of labour economics will be to establish a multiplier
effect for wages in construction.
Equipment Economics
1.18 Most developing countries are obliged to import any equipment to be used in the
construction industry. As such, the economics of equipment utilisation are set by
the opportunity cost of scarce foreign exchange. In South Africa, however, there
is already a domestic construction equipment manufacturing industry. This is
dominated by Bell Equipment, though other brands of equipment are imported.
The research will establish the proportion of the value of demand for equipment
that is satisfied by domestic manufacture versus imported items.
1.19 Of course, the domestic manufacture of construction also has employment
benefits, albeit only a limited number of relatively high wage-earning
opportunities. The research will calculate a multiplier effect for earnings in this
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