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

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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 67
domestic industry to set against that of incremental employment in construction itself. 1.20 For imported equipment, the research will establish an opportunity cost for foreign exchange which could be used for other developmental purposes. 1.21 The choice of labour-based methods in construction is likely not only to depress overall demand for equipment but to shift the pattern of that reduced demand towards lighter and intermediate items. The research will gather data from Bell Equipment and any other major domestic equipment manufacturers on the share of labour in the cost of manufacturing different types and sizes of equipment. These data will be used to calculate the wage (and wage multiplier) effects of possible changes in the pattern of demand for construction equipment. Methodology 1.22 The research is expected to involve three main stages: i) conceptualisation, including the development of an economic modelling approach; ii) the collection of data and information - both on the labour economics and equipment economics fronts: iii) computer modelling of changes in the balance of labour and equipment factor inputs for construction and associated costs and benefits 1.23 The first stage will be of critical importance as it may affect the scope and nature of data collection and the time required for computer modelling. Accordingly, an Inception Report should be prepared on completion of the first stage of work, including detailed proposals of work required in the second and third stages. 68
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SETP No. 14 The Economic Value of I
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Copyright © International Labour O
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Table of Contents PREFACE .........
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List of Abbreviations CBPWP GDP ILO
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Structure of the Report This report
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8. It is shown in the forth area of
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1.8 In order to achieve this object
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3 A Labour Focussed Profile of the
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Figure 3-2 Employment in the Constr
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construction. Real wages are higher
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Table 3-3 Construction industry Ave
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Figure 3-7 1997 October Household S
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3.23 There are four possible reason
Page 31 and 32: Figure 3-8 Number of persons by inc
Page 33 and 34: 3.35 Estimates of average provincia
Page 35 and 36: 3.41 Table 3.11 reports on the prov
Page 37 and 38: 3.45 An attempt was made to verify
Page 39 and 40: Summary 3.50 The construction indus
Page 41 and 42: A profile of income and expenditure
Page 43 and 44: Figure 4-1 Percentage of expenditur
Page 45 and 46: Table 4-3 Expenditure increases for
Page 47 and 48: Table 4-5 Expenditure increases for
Page 49 and 50: 4.18 Here we find that grain mill p
Page 51 and 52: • Labour and capital are in unlim
Page 53 and 54: Figure 5-1 Schematics of the Mechan
Page 55 and 56: slightly higher additional income a
Page 57 and 58: Table 5-9 Indirect job creation Num
Page 59 and 60: 6 The Macro Economic Impact of the
Page 61 and 62: Standard Industrial Classification
Page 63 and 64: Table 6-6 Macro economic impact of
Page 65 and 66: Figure 7-2 Cost of Gravel Road Cons
Page 67 and 68: • When adverse soil or other cond
Page 69 and 70: Table 7-5 Capital cost amortisation
Page 71 and 72: Table 7-8 Local and Import costs of
Page 73 and 74: • In the first five years of oper
Page 75 and 76: 7.41 Table 7.4 is sourced from Tabl
Page 77 and 78: 8.10 Second, the analysis did not t
Page 79 and 80: References Bulmer-Thomas, V. (1982)
Page 81: practical feasibility alone, labour
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