34078

Issues in Prices and Incomes Policy in Zambia

by

mark LeisersonDavid Lindauer

oey Astra MeesookParita Suebsaeng

The World BankFebruary 1984

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Contents

Page

I. Introduction. ............................................... 1I.1 The Background of the Prices and Incomes Commission... 1I.2 Prices and Incomes Policy: Rationale and Objectives 3

II. wage Guidelines and Controls . .. .................. . 6II.1 Government Objectives and Wage Guidelines ........... 7II.2 Collective Bargaining Settlements .................. 11II.3 Government Wage Decisions .......................... 14II,4 Nonunionized Wages and Salaries ....o ................ 18

III. Price Controls: when Good Intentions Backfire .............. 22II1.1 Agricultural Producer Prices ................... ... 23II1.2 Prices of Essential Commoditiesn...*...o ts............ 25III.3 Prices of Parastatal Products ...- o ucts............... 29II1.4 New Directions ................ ....... . .......... .... 31

IV. The Role and Operational Responsibilities of the Pricesand Incomes Commission.m.m..i ..... . .... 35

V. Wage Administration and Employment Policies in the Public Sector:Suggestions for a Collaborative Work Program..............o 41

Annex I: Wage Trends After Independence.................... 48

Annex II: Data Requirements. ..... o.................. . ........ 57

Appendix ..... o. ................. 68

S 4

Issues in Prices and Incomes Policy in Zambia

I. Introduction

this paper presents some preliminary findings and views on wage and

price policy issues facing the Prices and Incomes Commission (PIC). Following

indications by the Chairman of the PIC that he would welcome assistance from

the World Bank, a mission visited Zambia in May - June 1983. 1/ This paper is

intended for circulation and discussion in the PIC, the Ministry of Finance

and others in the Zambian government to broaden the awareness of the types of

issues which will have to be dealt with by the PIC and the importance of

coordination among the various policy-making units within the government. It

is not a formal World Bank report; rather, it should be seen as an informal

paper which raises a large number of issues and opens up more areas for

investigation than the PIC is likely to be able to carry out. The intention

is to present the views of World Bank staff on the areas which should be given

priority by the PIC and to propose a work program for collaboration between

the PIC and the World Bank in one of these areas, namely public sector pay

policy.

I.1 The Background of the Prices and Incomes Commission

Following the recommendations of the TUrner report, the Prices and

Incomes Commission Act of 1981 established the Prices and Incomes Commission

-/ The mission consisted of Mark Leiserson and Oey Astra Meesook. Amemorandum (dated June 9, 1983) was given to the Chairman of the PIC at theend of the mission summarizing our initial findings.

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and provided it with a very broad general mandate along with some quite

specific responsibilities and powers. Formally its principal functions are to

recommend policy actions to the government and to report on their implement-

ation. However, in the case of collectively-negotiated wages, the PIC has

been empowered by a 1983 amendment to the Industrial Relations Act to

disapprove of or amend any agreement which does not conform to the

government's wage guidelines. The ratification of collective agreements had

previously been the responsibility of the Industrial Court. A "statutory

instrument" to give the PIC similar authority over wages and salaries for

nonunionized categories of employees is expected to be issued shortly. With

these broad legal powers over wage and salary adjustments, the PIC is faced

with the task of how they are, in fact, to be exercised and administered.

The position of the PIC with regard to price regulation and control

is both more complex and less clear. Under its legislative authority the PIC

is responsible for making general recommendations on price policy; making

specific recommendations for price levels of any "controlled" good or service;

and investigating and reporting to the government on the implementation of

price control. With the general decontrol of prices in early 1983, it is not

clear precisely where or how government influence over price developments is

being exercised. The basic price control legislation has not been repealed

and the government still maintains close control over the pricing of

agricultural output and a selected number of commodities by the parastatals.

Since overall pricing policies in Zambia are undergoing fundamental reform,

the PIC will need to anticipate how its role in pricing decisions should

evolve.

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1.2 Prices and Incomes Policy: Rationale and Objectives

Price and wage policies are properly viewed as integral parts of any

system of national economic management. Decisions taken with respect to

different economic sectors in the process of carrying out development policy

have implications for the levels and movements of prices and wages and, con-

versely, direct decisions concerning prices and wages will have repercussions

on the levels of production in different sectors of the economy and on the

level and pattern of consumption. The formulation of a comprehensive prices

and incomes policy necessarily implies that the interrelationships between

wages, prices and other economic variables are explicitly and simultaneously

examined within a context and forum in which the interests of different

parties can be weighed against one another, including those of unorganized

groups whose well-being may otherwise be slighted in general policy

discussion. Thus, the objectives of prices and incomes policy are those

shared with other areas of economic and social policy. They include the

achievement and maintenance of internal and external financial stability; the

fostering of economic growth and full employment; the efficient use of

natural, human and capital resources; the reduction of wage and income

inequities; and the protection and enhancement of basic living standards.

A number of special economic and institutional features provide

further rationale for a comprehensive prices and incomes policy in Zambia.

First, the country is heavily dependent on foreign trade, with a concentration

of exports in copper and other metals. This situation entails both great

potential benefits and substantial vulnerability to international economic

fluctuations. Given the recent deterioration in the external terms of trade

facing Zambia, a critical question is how government actions, market forces

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and institutional arrangements determine who will absorb the resulting income

losses. Second, the Zambian domestic market is small and many industries are

characterized by monopolistic situations. The government may therefore have a

role through pricing policies to intervene in an attempt to protect consumers

from the higher prices and lower output levels monopolies tend to offer.

Third, because of the dominance of the government and parastatal sectors in

the formal sector labor market, government decisions concerning public

employment and wages have a major effect on the formal sector as a whole, as

well as on the government budget. Rather than being able to use private

sector wage levels as a yardstick, the government finds itself having a major

impact on wages and salaries throughout the formal sector whenever it takes

action concerning wages or employment of its own civil servants. This fact

needs to be taken into account by the government in the formulation of an

overall prices and incomes policy. Finally, given the size and strength of

the trade unions in Zambia, the formulation of wage and price policies may

provide the opportunity for government, management and labor to reach a

consensus on wage and price adjustments. Without some such mechanism for

reaching a consensus, the resolution of competing interests may prove to be

more difficult.

Against this background, the policy concerns which can be

considered to come under the purview of the Prices and Incomes Commission and

for which the Commission would want to take some responsibility include short-

run stabilization and inflation control; market structure issues of efficiency

and equity; the management of the public sector, that is to say employment and

wage issues in the government and parastatals; poverty alleviation and

distributive issues; and industrial relations and dispute settlement. The

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Commission will of course have to define its role in terms of policy analysis

and to select which issues it needs to focus on, subject to its functions as

set out in the legislation.

In its deliberations and operations the Prices and Incomes

Commission will need to distinguish between short-run problems, which have to

be dealt with as part of the country's macro-economic management, and the

longer-term issues of structural changes. In the short-run, the PIC can be

expected to be consulted on wage and price issues which arise in connection

with, for example, exchange rate adjustments, fluctuating external terms of

trade, government expenditure management and inflation control. It is in this

context that the PIC became involved in the issuance of guidelines for, and

administration of, the 10% wage ceiling imposed in connection with the recent

standby agreement with the IMF. However, it is also crucial that the PIC give

due consideration to the question of the longer-term development of the

Zambian economy.

Among the specific policy instruments for which advice and recommen-

dations by the Prices and Incomes Commission should be most influential are

wage-price guidelines, price control levels and pricing regulations, wage con-

trols and labor market regulations, government wage levels and wage structure,

and parastatal pricing and wage decisions. In the next two sections, we

discuss a number of specific issues related to wage and price policy

formulation and implementation.

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II. Wage Guidelines and Controls

Until the recent establishment of the Prices and Incomes Commission,

Zambia had no central agency which was charged with the responsibility for

formulating an overall prices and incomes policy. A number of institutions,

for example the Office of the Price Controller in the Ministry of Commerce,

were in place for regulating the levels of key prices and their rates of

increase, whereas attempts to influence the rates of increase in wages and

salaries were neither comprehensive in coverage nor systematically applied.

Nevertheless, the government has had a great deal of influence over

rates of nominal wage increases in the formal sector. First, it is respon-

sible for setting the salary scales in the civil service which alone accounts

for over one-third of total wage employment. Second, it has in the past

attempted to influence wage decisions in the parastatal sector from time to

time in individual cases. Eventually, the frustration of the competition

offered by the parastatal sector and the perceived need for the public sector

to catch up with it periodically were behind the government's decision to

forge a unified salary scale for the public and parastatal sectors in the late

1970's. Finally, the government has attempted to influence the wages of

unionized workers through the issuance of wage guidelines.

However, without clearly-defined objectives with regard to overall

wage policy and without direct means of enforcing wage guidelines, the

government has not until recently been in a position to influence the rates of

increase in the wages of unionized workers in any systematic fashion. Now

that the Prices and Incomes Commission has been given legal authority to

ratify, modify or reject collective agreements, it could become a powerful

instrument for ensuring compliance of government wage guidelines for the vast

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majority of the formal sector work force. Since a 'statutory instrument' to

give the Prices and Incomes Commission similar authority over the wages and

salaries of nonunionized employees is expected to be issued shortly, the

potential degree of government control over wage decisions in the formal

sector will be quite far-reaching.

In the following sections, we shall deal separately with issues of

government objectives and wage guidelines, collective bargaining settlements,

government wage decisions, and nonunionized wages and incomes.

II.1 Government Objectives and Wage Guidelines

Table 1 summarizes government attempts to set general wage guide-

lines, government wage decisions regarding the civil service, and key wage

settlements in the mining sector over the past two decades or so. Although

government preoccupation in the area of wage policy has been increasingly with

wage restraint, this has not always been the case. The wage scales for Afri-

cans and non-Africans were completely distinct up to 1961, while the period

1961-1967 saw a gradual movement towards a unified nonracial pay scale which

was marked by large pay increases in all sectors, the unification taking the

form of a rise in African wages to meet those of non-Africans. The impetus to

this development came from the unification of pay scales in the mining sector

following the recommendation of the Brown Commission in 1966 to raise the

wages of Africans by 22%. Thus the objective of reducing the gap between the

levels of pay for Africans and non-Africans was achieved largely through wage

increases.

A somewhat different official wage policy started to emerge after

the first Turner report in 1969. Since then government wage policy has

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-9-

generally been equated with wage restraint. Given the current economic

difficulties facing Zambia and the identification by many observers of high

wages as a major contributing factor to these difficulties, it seems likely

that the establishment of wage guidelines by the Prices and Incomes

Commission, primarily with the objective of restraining money wage increases,

will become an increasingly important policy instrument, at least over the

short run. Yet over the longer term, it is presumably not an objective of the

government to keep real wages low. Indeed, the most basic goal of development

policy is to raise the standard of living of the population, and this can only

be attained if real labor incomes rise over time. If for no other reason,

recognition of the longer-term objective of increasing productivity

accompanied by growing real wages suggests that wage policy needs to be

considered not as independent from, but rather as part of, national

development policy. In actual practice, the Commission needs to determine

both what the wage guideline should be in general, and also how to make it

sufficiently flexible to be workable. The determination of wage guidelines

should be governed by two of the most fundamental objectives of economic

policy: to raise the overall level of real income and to improve its

distribution among the population. It must, however, also be dictated by a

realistic assessment of the various prospects and constraints facing Zambia at

any given time. Thus the guidelines need to be considered in the context of

the government's current development strategy and will require a proper

understanding of the macro-economic interrelationships in Zambia.

A number of factors should be taken into consideration in the deter-

mination of general wage guidelines: changes in productivity and profit-

ability, trends in import and export prices ('terms of trade'), and consumer

- 10 -

price movements. An important function of the Prices and Incomes Commission

is to explain to the parties concerned why it has set the general wage

guideline at a particular level. If money wages on average are not to rise as

fast as consumer prices, what considerations have entered the Commission's

decision? If it is because the external terms of trade facing Zambia have

deteriorated, this should be made clear. The articulation of the major

reasons influencing the Commission's recommendations will go a long way to

dispel the notion that the government has not thought through the effects of

its actions on the well-being of workers.

The recommendation for the general wage guideline will be based on

macro-economic relationships, but allowances will have to be made for indus-

tries or sectors which deviate from the norm, for specific skill categories,

and for protecting the poorer groups in the population. Thus there are a

number of factors to take into account in allowing for deviations from the

general wage guideline: changes in productivity and profitability in specific

industries; relative skill shortages; and basic needs of the lowest income

groups.

In shaping its guideline recommendations, the Commission will need

to give close attention to labor demand and supply situations of particular

types of workers and in particular productive sectors. Attempts to enforce

higher wages in the face of declining labor demand or to maintain too-low wage

and salary levels in areas of critical labor shortages are bound to have

adverse effects on productivity and efficiency. Thus, the Commission will

need to be sensitive to shortages that may exist in specific skill categories,

such as doctors, engineers, architects and accountants. These will need to be

identified as part of the Commission's monitoring functions so that greater

flexibility in terms of deviations from average levels of wage increases can

be allowed for. Likewise, the Commission needs to inform itself of the

employment and unemployment situations in different areas or sectors. The

guidelines should be given in such a way as to encourage below-average wage

adjustments in those areas or sectors suffering relative declines in labor

demand and relatively higher levels of unemployment, and above-average wage

adjustments where there is rising labor demand. Such a situation is expected

when the economy diversifies away from copper towards agriculture, for

example.

Thus the Commission as part of its monitoring functions will cer-

tainly need to follow levels and trends in wages, employment and unemployment

in major sectors, as well as degrees of shortages of specific skill cate-

gories, in order to be in a position to make appropriate recommendations

concerning acceptable deviations from the government's general wage guide-

lines.

Finally, although the Commission will only have formal responsibil-

ities to set wage guidelines in the organized sector, it nevertheless must

inform itself of trends in wages and incomes in the unorganized sector in

order to be able to assess the effect of its policy recommendations on

disparities in incomes between these population groups.

II.2 Collective Bargaining Settlements

There has been a long tradition of trade unions and collective

bargaining in Zambia. The Industrial Relations Act provides for the estab-

lishment of trade unions, employers' associations, the Zambia Congress of

Trade Unions, the Zambia Federation of Enployers, works councils and joint

- 12 -

industrial councils. It makes provisions for collective bargaining at both

the establishment and industry levels, and for the Industrial Relations Court

which is independent but comes under the Ministry of Labour and Social

Services. Following the establishment of the Prices and Incomes Commission,

the Industrial Relations (Amendment) Act of 1983 transferred the authority of

examining and ratifying collective agreements from the Industrial Relations

Court to the Prices and Incomes Commission. The ratification is subject to

the Commission's being satisfied that the collective agreement is not contrary

to any written law or to the Government's declared policy on prices and

incomes, or prejudicial to public interest. The Industrial Relations Court,

however, is still charged with the settlement of industrial disputes, again

subject to the settlement not being contrary to any written law in force at

the time or to public policy in the Republic. However, since the Industrial

Relations Court itself has to abide by the guidelines issued by the Prices and

Incomes Commission and may consult with it on matters of interpretation, the

precise working relationship between them seems unclear at this point.

The existing legislation provides by far the greatest degree and

specificity of authority to the Prices and Incomes Commission to execute that

part of the government's prices and incomes policy which concerns the wages of

unionized labor. Collective agreements which do not conform to government

policy, expressed, for example, through wage guidelines, can be rejected by

the Commission. Although the Industrial Relations Court was previously

charged with the responsibility for ratifying collective agreements, it

operated without any guidelines and consequently never disapproved any

collective agreements. In contrast, the Prices and Incomes Commission is

charged with "formulating and recommending a comprehensive prices and incomes

- 13 -

policy" for the approval of the government. Thus the guidelines governing the

ratification of collective agreements are set by the Prices and Incomes

Commission itself, so that its ability to ensure compliance of its prices and

incomes policy insofar as it involves wages of unionized workers is poten-

tially very great. This gives it enormous influence over wage developments in

the formal sector as a whole; at the end of 1980 when total formal sector

employment was estimated to be around 384,000, total trade union membership

stood at over 300,000. 1/

There are 18 individual trade unions which carry out negotiations

separately. The secretariat of the Zambian Federation of Employers monitors

all agreements which are available at the Industrial Relations Court going

back as far as 1973. The small number of workers in the formal sector not

belonging to unions, mostly shopworkers and some categories of farm workers,

are covered by the Minimum Wages and Conditions of Employment Act of 1982

which sets out the minimum rates of pay and conditions of employment for any

group of workers for whom the Minister of Labour and Social Services is of the

opinion that no adequate provision already exists.

The legislation gives the entire responsibility for ratifying

collective agreements to the PIC. The Commission will therefore need to have

the capacity to analyze all collective agreements which will be coming to it

for ratification, summarize the resulting pay increases and follow the

negotiation schedules. The Commission needs to find ways to make these tasks

easier by specifying in its wage guidelines the information that should be

1/ Report on Employment and Earnings, 1980, Central Statistical Office,Lusaka, April 1983; and Annual Report of the Department of Labour for the Year1980, Ministry of Labour and Social Services, Lusaka, 1982, Table 19, p. 41.

- 14 -

submitted to it along with the collective agreement. The burden should be put

on the negotiating parties to present evidence that wage guidelines have

indeed been complied with. The PIC should require every agreement submission

to include information on the percentage increase in total pay (basic salary,

allowances and fringe benefits), so that the trend in negotiated pay increases

can be monitored on a continuous basis.

A more fundamental issue, however, is that the system of wage

guidelines should not be construed as a system of comprehensive and mandatory

wage controls. The government should not consider itself to be in the

business of wage fixing in general, although as an employer it already fixes

the wages of its own civil servants. Wage guidelines should come about

through a process of consensus involving the government and representatives of

employers and workers; this puts emphasis on negotiation and persuasion. The

guidelines should be treated as points of reference for wage settlements and,

therefore, they should leave room for negotiation in individual cases. Thus

the PIC's power of ratification of collective bargaining settlements should

not be interpreted in a rigid fashion. The important thing is that wage

guidelines can only be successful if they work and, in the context of

collective bargaining, they can only work if the parties concerned have

reached a general consensus on their broad orders of magnitude.

II.3 Government Wage Decisions

Wage settlements in the Zambian civil service have had the following

characteristics: they have taken place at infrequent intervals, usually

following recommendations of specially appointed salaries review commissions;

the commissions have generally based their recommendations on criteria

- 15 -

involving comparability in salary scales between the civil service and the

parastatal and private companies; fringe benefits and other allowances are

significant components in total pay and have become increasingly important

over time.

Given the magnitude of government employment, it seems appropriate

that the Prices and Incomes Commission should make recommendations concerning

civil service pay adjustments and, as part of its monitoring functions, keep

itself informed on matters bearing on its recommendations. Some of the issues

related to civil servants' pay which have emerged as requiring attention by

the PIC include the appropriate frequency of adjustments in civil service pay

level and structure; the factors which should be included in determining civil

service pay level and structure; the appropriate composition of the pay

package; and the relationship between civil servants' pay and the government's

wage bill and its impact on the budget.

Since Independence, salary adjustments in the civil service have

generally been based on the recommendations of salaries review commissions

appointed specially for the purpose at roughly four-year intervals. The

adjustments have involved changes in both the general level and the structure

of salaries. For the years between reviews, civil servants have generally had

to forego any adjustments in their pay, even when the government's general

wage guidelines have allowed increases. T¶his means that when adjustments are

finally made, they tend to be large and consequently have a disruptive effect

on the formal sector as a whole by setting off a series of pay adjustments in

the parastatal and private sectors in response to the government action. In

addition, a hardship is imposed on civil servants, especially the lowest-paid,

when salaries lag behind the cost of living in the years between adjustments.

- 16 -

Now that the Prices and Incomes Commission is charged with setting

general guidelines on wage increases, it would be appropriate for it to

consider, for example, whether to recommend general adjustments in government

and parastatal salary scales on an annual basis, while reserving less frequent

reviews by special commissions to recommend more extensive revisions in the

structure of civil service grades and salary scales. The factors which should

enter in the determination of pay increases in the civil service are the same

as those for the general wage guideline but should, in addition, include the

budgetary position of the government.

the approach of the salaries review commissions in the past has been

to compare the salary scales in the civil service with those for the para-

statal companies, especially for the more senior levels. Recommendations for

salary increases were intended to close the gap between the civil service and

the parastatal sector on the grounds that the government needed to be able to

attract qualified people and if it could not compete with public enterprise

salaries, government officials would resign and join the parastatals.

An issue facing the Prices and Incomes Commission is whether parity

with the parastatals is still the appropriate criterion for wage determination

in the public sector. Now that following the Mwanakatwe report a unified

salary scale exists for both the public and parastatal sectors, the question

becomes how to administer and adjust this unified scale. The PIC will also

need to be aware of how its actions concerning the public and parastatal

sectors affect the formal sector labor market as a whole, given that together

these sectors account for three-quarters of total formal sector employment.

In comparing the levels of pay in the government, parastatal and

private sectors, it is essential not to overlook fringe benefits and

allowances. The relationship between total pay packages could be very dif-

ferent from that between basic salaries. Comparisons of trends in total pay

over time can also be affected since there has recently been a tendency for

pay increases in the parastatal and private sectors to be in the form of

nonsalary benefits, such as housing and transportation allowances. For the

government itself, it needs to consider what the appropriate composition of

pay for its civil servants is and to have a clearer idea of the link between

the level and composition of pay and job performance.

Turning to the budgetary issue concerning government employment, two

problems make it difficult for the government to have an accurate picture of

what its total wage bill is. The valuation of all fringe benefits is one of

them. At present under the heading 'Personal Emoluments' in the government's

estimates of expenditures are listed various allowances such as housing,

sitting, outfit and uniform, and other allowances. However, what are left out

altogether are the fringe benefits which are given in kind and do not involve

cash payments, such as the provision of actual housing, cars or servants. It

has been estimated that the subsidy in the provision of high-cost housing at

low rents to civil servants and parastatal employees amounts to about K95

million annually. 1/ The second problem concerns classified daily employees

who can be hired at the discretion of the individual departments and whose

wage payments appear under the heading 'Recurrent Departmental Charges' and

not 'Personal Enoluments.' No central record is kept of the numbers employed

as classified daily employees; they are considered to be temporary workers

1/ ILO/JASPA, Zambia: Basic Needs in an Economy Under Pressure, I.L.O., AddisAbaba, 1981, Table 1.2, p. 10.

- 18 -

even though many of them have been at their jobs for years and the departments

feel an obligation to keep on hiring them. In 1980, the wage payments to

classified daily employees amounted to K34 million, or 13% of the government's

total wage bill excluding fringe benefits. 1/ In order to estimate accurately

the size of its total wage bill and how sensitive this might be to changes in

the level and structure of wages and salaries, the government will need to get

an accurate estimate of the value and distribution of all the fringe benefits

to its civil servants and the total employment of, and wage payments to,

classified daily employees.

II.4 Nonunionized Wages and Salaries

A number of issues have arisen with respect to the wages and

salaries of nonunionized workers: the problems related to the unification of

the salary scales in the civil service and the ZIMCO companies; the problems

of the relationships between the wages of unionized and nonunionized workers;

and the increasing tendency for pay to be given in the form of fringe

benefits.

The Mwanakatwe Commission in 1975 made recommendations which led to

a unified salary scale for the nonunionized workers in the civil service and

the parastatal companies of the Zambia Industrial and Mining Corporation

(ZIMCO), thereby forcing the desired comparability between their salaries.

ZIMCO has found this arrangement to be unsatisfactory for a number of

reasons. First, it feels that the unification has hurt its subsidiaries which

World Bank, Planning and Budgeting in Zambia, Volume II - TechnicalAnnexes, February 1983.

- 19 -

have to compete with the private sector, rather than the government, for their

workers. Private companies are at an advantage in having the freedom to fix

and adjust their salary scales whenever necessary. Another problem with the

unification concerns the wage relationship between the unionized and

nonunionized workers. The wage scale and fringe benefits for unionized

workers are obtained through collective bargaining. ihe nonunionized workers

can be expected to make similar demands in order to retain the existing pay

differentials. In fact, it would be in their own self-interest to acquiesce

to union demands in order to be in a position to justify similar increases for

themselves subsequently. In the private sector there is no restraint on this

catching up, but in the parastatals where there is pressure to keep the

salaries of nonunionized workers in line with the government scale which is

adjusted only periodically, the level of pay of unionized workers has been

catching up with that of the nonunionized workers and, not surprisingly,

creating dissatisfaction within the latter group.

While the pay differentials between the public, parastatal and

private companies cannot be ascertained without a detailed study, it is clear

that ZIMCO already has a great deal more flexibility than the government

through its extended scale for professional and technical workers which allows

it to increase their salaries by up to 40% of their basic levels. Moreover,

there is further flexibility in terms of which of four possible grades the

chief executive of a ZIMCO subsidiary is slotted in, since this determines the

effective salary scale for all the workers in the company. It is also

generally believed that the parastatals offer superior fringe benefits

compared with the government. Thus the parastatals are not as constrained as

- 20 -

the government in terms of their ability to compete with the private sector

for workers.

There has recently been a tendency for pay increases in the non-

government sectors to be in the form of nonsalary benefits, such as housing

and transportation allowances, in part as a result of high marginal tax rates

on wage income and because of recent wage ceilings imposed by the govern-

ment. In the parastatals, additional fringe benefits have been granted to

nonunionized workers in an effort to make up for the erosion in their basic

salaries vis-a-vis the unionized workers. The fact that there are many ways

of increasing workers' earnings without increasing basic salaries or wages

means that control over fringe benefits will present the government with

difficult problems of interpretation and administration. But since the real

objective of government wage guidelines is to influence total labor costs, it

is clear that the guidelines should be applied to total pay, not just wages

and salaries.

The government is apparently planning to give the Prices and Incomes

Commission authority over the wages and salaries of nonunionized employees

similar to what it already has over the wages of unionized workers. It is not

known at this stage what form this authority will take, but there will be even

greater need for the government to formulate clear and consistent policies to

guide the development of wage levels for the unionized and nonunionized

workers in the public, parastatal and private sectors. The PIC will need to

understand both the structure and composition of pay packages in these

different sectors and to be able to set some clear principles concerning wage

determination and adjustments in order to make recommendations concerning wage

guidelines for these sectors.

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In considering the wage and salary relationships between government,

parastatal and private organizations, the Commission and the government will

have to face the basic policy choices regarding the degree of autonomy of the

various types of employers in settling on wages and working conditions. Since

some of the basic facts about the size and trends in differentials between

total remuneration or wage packages are unknown, the whole area warrants

considerable further study.

- 22 -

III. Price Controls: When Good Intentions Backfire

The desire of the Zambian government to protect consumers from

exploitation by producers and distributors and to ensure the same advantage

for the rural population as for the urban population has led over the years to

a very great degree of involvement by the government in a complex system of

price controls, with economic consequences far beyond what had originally been

foreseen or intended by the policy makers.

Three major categories of prices come under some form of price

control: agricultural producer prices, prices of 'essential commodities', and

prices of the products of parastatal companies. Since December 1982, with the

announcement of the general decontrol of wholesale and retail prices, only

three commodities (maize meal, wheat flour/bread and candles) have continued

to be classified as 'essential'; price increases for them must still be

approved by the government. The prices of all other commodities can be set by

the enterprises themselves, subject to the ex post review by the Prices and

Incomes Commission. In practice, the prices of the products of parastatal

companies will be subject to the approval of the Board of Directors of INDECO

and, for eight commodity groups, by ZIMCO. Agricultural producer prices and

input prices are still subject to price regulation.

At this juncture, Zambia is in the process of undergoing fundamental

reforms in the area of pricing policy. Thus, our discussion below of the

system of price controls as it was before. December 1982 is with a view of

learning how pricing policies in the future can better serve the stated policy

objectives which had provided the rationale for instituting the system of

price controls in Zambia in the first place.

- 23 -

III.1 Agricultural Producer Prices

The government sets prices for a number of key crops and livestock. 1/

The regulation fixes the prices paid to producers on delivery of the product

to NAMBoard and Provincial Cooperative Unions or specified depots; in

practice, they are the maximum prices received by farmers. The producer

prices are reviewed and announced annually; they are based on the average

costs of production for the different crops on commercial farms estimated from

surveys, with an allowance for a pre-tax rate of return on capital of around

10%. 2/ Actual costs of production may of course differ from the average

because of differences in the method of production, type and location of the

farm, weather conditions and so on. A uniform price is set for each crop

throughout the country.

A number of observations can be made about the regulation of agri-

cultural producer prices concerning their general level, variations across

different locations, trends over time, and levels and trends for different

crops.

Agricultural producer prices are generally set at levels which are

different from their border prices or, more accurately, the import/export

1/ The main exceptions are pork, poultry, vegetables and a number of cropswith a limited demand such as chilis.

2/ H. A. Turner et. al., Second Report to the Government of Zambia onIncomes, Wages and Prices in Zambia: Policy and Machinery, Part II: SpecialStudies and Reference Documents, p. I/4, ILO, Geneva 1978.

- 24 -

parity prices. 1/ It has been estimated that, for the period 1965/66-1974/75,

producer prices were on average 75% of the import/export parity prices, while

for the period 1975/76-1978/79 they were 84%. 2/ The producer price for

maize, the basic staple, was 74% of the import parity price between 1965/66-

1974/75; when the fertilizer subsidy was included, it was still only 79%. The

production of maize at this price was insufficient to meet the domestic

demand, thus making it necessary to import to make up the deficit. And since

the consumer prices of agricultural products are in turn based on the producer

prices, government subsidies have been involved when the necessity for imports

arises. Likewise, the producer prices for a number of export crops have been

below the export parity prices. Thus the low levels of agricultural producer

prices have had adverse effects on the economy in terms of smaller agricul-

tural output, lower rural incomes, erosion of scarce foreign exchange through

imports, and a drain on the government budget. The immediate beneficiaries

are the urban consumers who pay lower prices for their food and probably

consume more than they would at higher prices.

Although most of agricultural output is sold to the official mar-

keting boards at the official prices, a certain amount of output escapes the

system. Some is sold in a different region of the country; some is smuggled

across the borders into neighboring countries, for example from Luapula

province into neighboring Zaire which provides a market at higher prices and

1/ Import parity prices include the transportation cost to primarydistribution centers in Zambia, while export parity prices include thetransportation cost to the border.

2/ The World Bank, Zambia Country conomic Memorandum, Report No. 3007-ZA,February 27, 1981, Table 18, p. 23.

- 25 -

relatively low transport costs.- / Some higher-grade produce is sold byfarmers directly to hotels, supermarkets and traders at prices above thegovernment prices. 2/

The government has a policy of setting a uniform level of agricul-tural producer prices all over Zambia. This is defended on equity grounds asa subsidy to the more remote areas. Efficiency considerations make thispolicy questionable since the marketing boards have to operate uneconomicalservices and the incentive to grow crops in unsuitable areas is not dampened.

A comparison of the development over time of agricultural producerprices and the prices of urban-produced goods shows that the latter have risenfaster than the former so that the terms of trade have moved against ruralproducers who must pay more in agricultural output for commodities they pur-chase from urban areas. The overall effect of price control has beenincreasingly to the disadvantage of rural producers.

Moreover, for crops produced by the poorer farmers, such as cassava,sorghum and millet, there has been little attention given by the government totheir marketing and the increases in prices for these crops over time have notbeen so fast as that for maize which is apparently grown by farmers who arebetter off.

III.2 Prices of Essential Commodities

The government applies direct control over prices through theControl of Goods Act. Until December 1982 a large number of commodities

I/ ILO/JASPA, Op. Cit., Technical Paper No. 9, p. 127.

2/ ILO/JASPA, Ibid., p. 94.

- 26 -

deemed to be 'essential' came under price control, both at the wholesale and

retail levels, and whether they were produced by parastatal or private

companies. The Office of the Price Controller in the Ministry of Commerce was

responsible for determining the appropriate levels of prices and for enforcing

price controls, although the final approval for the prices of nine commodities

(salt, sugar, mealie meal, flour/bread, beer, stockfeed, cooking oil, medi-

cines and petroleum) rested with the Cabinet. The commodities covered were

those which were seen to be controllable as well as essential. Services, for

example, did not come under price control. There were, however, a number of

items which might be considered essential but were not covered, for example

shoes.

The price of a controlled good is determined through a cost-

accounting approach, that is, a pre-determined mark-up is allowed over the

actual cost of production. The price of an imported good is based on the

landed cost with a 10% mark-up for the wholesaler and a 15% mark-up for the

retailer. Ihe retail price of an agricultural commodity is based on the

producer price. As a rule, a uniform price is set throughout the country.

Maize meal and bread are exceptions; for them variations in prices are allowed

in different parts of the country to reflect the costs of transportation and

distribution.1/ The enforcement of price controls is carried out through

inspection and prosecution of violators.

The stated purpose of price control is to protect the consumers from

being exploited by monopoly producers and distributors, but the actual outcome

has worked against the government's original intention. Although compliance

H. A. Turner et. al., Op. Cit., p. I/26.

- 27 -

with price control has probably been reasonably good in large urban retail

stores, economic forces tend to push the market prices above the controlled

prices where price supervision is less thorough. The attempt to hold down

prices has reduced the incentives to supply while stimulating consumer

demand. Smuggling and blackmarket operations have been observed for con-

trolled goods at various times. Shortages, or even absence of goods in some

cases, have been observed, as well as a reduction in the number of retail

stores. 1/ The consumer does not benefit from price control when he is faced

with a shortage and has to incur costs in terms of search time or higher

prices in the black market. There is evidence that the market prices of some

essential commodities can be much higher than the controlled prices,

especially when they are sold in smaller units.

For some time the government introduced legislation to bar sale in

the market of 'essential' commodities on the grounds that marketeers charged

excessive prices, especially when the product is repackaged. Although the

legislation has since been repealed, repackaging is still said to be illegal

and the practice is condemned by Party leaders. 2/ Such an attitude has only

served to encourage traders to withdraw their goods from the market and to

sell them from houses where they can increase the mark-up on small units of

commodities further, to the hardship of poor people who cannot afford to buy

large quantities at a time.

The government also has a policy of setting the same price for a

commodity throughout Zambia. The transport and distribution costs are

1/ ILO/JASPA, Op. Cit., pp. 22 and 35.

2/ ILO/JASPA, Ibid., pp. 94 and 99.

- 28 -

averaged in the cost calculation for a commodity and this is used in setting

the price. The objective of this policy is to protect consumers in rural

areas from having to pay higher prices than their urban counterparts. In

practice this policy makes it less attractive for distributors to supply to

rural areas when compared to urban areas, and makes it altogether uneconomical

to transport and distribute merchandise to some distant rural areas. 1/ The

problem of uniform pricing further aggravates the basic problem of low

controlled prices to make the supply of basic commodities even more erratic

and unreliable in rural areas. Whenever there are shortages in urban areas,

the situation is worse in rural areas and the difference between the official

and actual prices is also greater in rural locations when the commodities can

be found there at all. 2/ The difference in price between a district

subcenter or village and a district center can be very great.

Not only have prices tended to be set too low, as manifested in

shortages and market prices above the controlled prices, in a number of

instances the problem has been further aggravated over time as prices have

been allowed to increase too slowly. The goods which have been most affected

in this way are processed food items for which a large proportion of raw

materials and other inputs are imported. The regulated consumer prices have

not increased as fast as the prices of imports so that the processing industry

has been operating at an increasing loss. The larger parastatal processing

companies, such as the grain and vegetable oil mills, have carried losses and

later been compensated by subsidies from the government budget, while the

1/ ILO/JASPA, Op. Cit., pp. 73 and 126.

ILO/JASPA, Ibid., p. 34.

- 29 -

smaller mills have gone out of business and the supply situation has been

further aggravated. 1/

In general, the controlled prices for rural products have risen more

slowly than those for urban-produced goods. Moreover, official prices have

been kept especially low for the produce of the poor, for example fish and

charcoal. 2/ It has been observed that, where a parastatal or government

department purchases the produce of poor rural people, the producer prices can

be very low while the trading margins very high, as in the cases of cassava

chunks and honey.

III.3 Prices of Parastatal Products

Similar procedures are used for setting parastatal manufacturing and

public utility prices. The INDBCO group of parastatal companies produces

roughly half of total manufacturing output. These companies are mostly mono-

polies and their product range covers a large number of basic consumer items

and industrial products. Before the decontrol of prices, the INDECO companies

submitted the recommended prices of their products to the Ministry of Industry

for approval. If the commodity was one which was controlled, the proposed

price was sent via the Ministry of Industry to the Office of the Price

Controller. In the case of important commodities, such as cement and ferti-

lizer, the prices were sent to the Cabinet for final approval. The private

1/ ILO/JASPA, 2p. Cit., p. 126.

3/ ILO/JASPA, Ibid, pp. 23-24.

- 30 -

sector was not subject to price control except where essential commodities

were concerned.

The Ministry of Industry has in the past generally followed a cost-

plus approach in the regulation of parastatal prices, although there has been

a number of parastatals which have operated at a loss at various times, as a

result of government policy to hold down the consumer prices of 'essential'

commodities. The government has now endorsed the idea of 'economic pricing',

meaning setting prices which cover costs with a reasonable rate of return on

investment, for all its parastatals. However, the dominant position of

parastatals in Zambia is bound to raise problems of coordination between

parastatal pricing and overall prices and incomes policies. One set of

difficult issues concerning parastatal pricing policy which may require

external surveillance has to do with whether the cost of production of a

parastatal commodity is unnecessarily high because of internal inefficiencies,

excessive profits or excessive remuneration of employees, given the monopoly

position of many parastatal companies. The parastatals have been able to

obtain finance from the government when they have run at a loss or lacked

additional finance for investment and this has certainly reduced management

incentives to operate efficiently or to hold down the wage bill. In addition,

the appropriateness of cost-plus pricing can be questioned in the case of an

acute shortage of imported commodities where the result may be that the

benefit of the scarcity rent resulting from easier access to the foreign

exchange required is simply passed on to the individual customers rather than

accruing to the government. Most of the parastatal pricing issues are

inextricably connected with questions of the role, management and efficiency

- 31 -

of public enterprises in Zambia and these will require careful study and

consideration.

With the exception of the three commodities which remain classified

as essential, prices of parastatal products can now be set by the enterprises

themselves, subject to the approval of ZIMCO and the ex post review by the

Prices and Incomes Commission. Since the announcement of price decontrol, the

prices of a wide range of commodities, including politically-sensitive pro-

ducts like rice, sugar, cooking oil, beer, soap and washing powders, have been

raised by up to 28%, as well as the prices of various petroleum products which

were raised at the same time as increases in excise duties were announced in

the budget. The prices of maize-meal products and fertilizer were also raised

in May 1983 by an average of 32% and 62% respectively.

III4 New Directions

The system of price controls in Zambia has been based on the desire

on the part of the government to protect the consumer from high price levels

and rapid price increases in general, and exploitation by monopoly producers

and distributors, the 'price sharks', in particular. Although the system

consists of a complex set of price settings and controls, some common elements

run through it: the appropriate price of a commodity is seen to be the cost of

production with a reasonable mark-up; attempts are made to keep prices low and

to limit price increases over time; and in general a uniform price applies

throughout Zambia.

The generally low prices have discouraged production and encouraged

consumption, resulting in inadequate supplies in relation to demand. These

have led to smuggling and shortages, as well as infringements of the price

- 32 -

controls. Where goods have had to be imported to make up the difference, they

have required subsidies to fill the gap between the domestic and import

prices, so that the balance-of-payments and budgetary problems facing the

government have been aggravated. The uniform price set for the whole country

has made the supply problem more severe in rural areas, and in particular the

more remote areas. The government's strategy of protecting the consumer has

in fact backfired so that the consumer ends up facing shortages or having to

pay higher-than-controlled prices.

The chief lesson to be learned from the experience of two decades of

government control over wholesale and retail prices of essential commodities

and parastatal products is surely that 'price sharks' represent a symptom,

rather than the cause, of the problems related to pricing in Zambia. Price

sharks take advantage of shortage situations; they do not create them. This

suggests that a system of price controls does not constitute an adequate

pricing policy.

As already pointed out, Zambia has some special economic and

institutional features which make it desirable for the government to have some

role in the area of pricing. However, this role should be predicated on a

clear overall pricing policy based on the use of border prices and a realistic

exchange rate. A country like Zambia, with a small domestic market, faces the

problem of there being too few producers, leading to monopolistic situ-

ations. Thus efficiency cannot be generated internally through market forces

and it becomes necessary to pay attention to border prices which provide the

only competitive references for the Zambian economy. Border prices provide a

signal of whether domestic producers, including import-substituting

industries, are efficient compared with foreign producers. In addition to the

- 33 -

use of border prices as references for domestic prices, a pricing policy

should be based on a realistic exchange rate which implies a reasonable

relationship between the prices of tradeable and nontradeable commodities.

Pricing policy, on the other hand, should not be confused with price

control. In fact, it would be desirable for Zambia to place greater reliance

on macroeconomic policies to achieve the appropriate general level of prices

through the exchange rate, monetary and fiscal policies, as well as policies

regarding the parastatals. There may be reasons for direct controls but these

should be for specific cases with good justification, such as for agricultural

commodities if the government deems it desirable to stabilize farmers'

incomes, or for some essential commodities to protect the poorer groups of the

population. In these instances, the PIC will still need to appreciate the

connection between prices and quantities, and hence the effect of price

controls on the quantities in demand and supply.

In terms of the role of the PIC in the area of pricing, this would

mean that the PIC should be generally supportive of the general thrust of

macro-economic policy through its pricing and wage policies, while confining

its attention on individual commodities to those cases that require special

attention.

One situation in which the government ought to be concerned about

exploitation of consumers involves monopoly producers and distributors; a

great many parastatal companies fall into this category. The reliance on

cost-plus pricing by itself is not an adequate solution since it provides no

incentives to keep down costs in the case of government-supported parastatals,

and where the good intentions of the government in holding down prices in

situations involving shortages cannot overcome the basic problem of shortages

- 34 -

in which someone else will secure the scarcity rent if the parastatal company

itself does not. The World Bank is doing work with ZIMCO to assess the

efficiency of parastatals which should help to ensure that the prices of their

products are "economic".

The Price Control Department of the Ministry of Commerce is still in

existence although its functions have been essentially eliminated by the

decision to decontrol prices. There has been some discussion of transferring

the department to the PIC so that it would have the capability to "monitor

prices". The precise purposes of this price monitoring are not at all clear

and it would be better for the PIC not to take over the Price Control

Department in order to stay away from the responsibility for controlling

prices.

- 35 -

IV. The Role and Operational Responsibilities of the Prices and IncomesCommission

The passage of legislation now in force has provided the Prices and

Incomes Commission and the government with ample statutory authority to inter-

vene in virtually any aspect of wage and price setting mechanisms. In fact

the legal powers that have been provided probably exceed the administrative

capacity likely to be available now or in the foreseeable future for effective

execution and implementation. Under these circumstances, the Commission will

have to use considerable restraint in recommending or exercising direct

governmental authority and to concentrate on those strategic elements of wage

and price determination through which it can expect to have some influence on

general wage and price developments. Decisions on policy actions will require

careful analytic and empirical work to provide guidance as to the form,

character and points of intervention. Otherwise there is a danger that the

resources of the Commission might be dispersed over too wide a range of

activities and, in attempting to do too much, jeopardize its effectiveness in

dealing with the central issues.

The various functions of the PIC can be classified into three cate-

gories: advisory, operational and monitoring. Most of the functions of the

Commission as delineated in the legislation are either advisory or moni-

toring. The advisory functions include formulating and recommending for the

approval of the government a comprehensive prices and incomes policy; and

recommending for the approval of the government a) minimum wage levels and

minimum conditions of service, and b) price levels for any controlled goods,

services, products or commodities, including price levels of agricultural

produce and livestock. The monitoring functions include evaluating and

reporting to the government on the implementation of the prices and incomes

- 36 -

policy as approved by the government, the Commission's recommendations

relating to minimum wage levels and minimum conditions of service, and the

price control. In addition, the Commission is charged with investigating and

reporting to the government "such particular cases or general issues as are

likely to affect any current or future prices and incomes policy." The only

specific operational function of the Commission involves examining and rati-

fying collective agreements. In addition, the Commission is charged with

doing "all such things as the Minister may direct in writing in order to give

effect to the execution and implementation of Government approved prices and

incomes policy."

Given the different degrees of specificity in the functions of the

Commission in the legislation, there may be a danger of the Commission's con-

centrating its efforts and resources on the more clearly defined functions of

examining and ratifying collective agreements and making recommendations on

the minimum wage and price levels. mhe case can be made, however, that the

advisory and monitoring functions of the Commission should be given at least

as much emphasis as the operational functions. Indeed, these different func-

tions should serve and enhance one another. The Commission will need to have

the capacity to monitor the implementation of price and wage policy and

general economic issues in order to be in a position to make recommendations

to the Government concerning wages and prices. Moreover, its operational

duties should serve the policies embodied in the Commission's recommendations

to the government. As already pointed out, the formulation of a comprehensive

prices and incomes policy will involve the consideration of the interrelation-

ships between wages and prices and other economic variables, including trade-

offs between the income levels, and hence standards of living, of different

- 37 -

population groups. The Commission and its Consultative Council 1/ are in a

position to carry out this task and should consider it part of its responsi-

bility to forge a consensus among the different parties on what an overall

prices and incomes policy should be, given the government's strategy for

economic development and the economic circumstances currently facing Zambia,

in order that its recommendations will not run into obstacles at the

implementation stage.

Such an interpretation of the functions of the Commission will have

implications for the types of information and data it requires, the sorts of

analyses it must be able to carry out and, consequently, on the way the

Commission itself is staffed. Moreover, the Commission will want to be

concerned with being included in relevant policy discussions and establishing

channels of communications with other parts of the government so that its

findings from its monitoring functions are taken into account in these

discussions and, on the other side, its policy recommendations in the area of

prices and wages are consistent with overall economic policy.

In setting up its operations, it may be helpful to distinguish

between the different types of responsibilities assigned to it. The advisory

and monitoring functions require it to follow various economic trends, analyze

relationships between the economic variables, anticipate both short-term and

long-term problems, and make appropriate recommendations. The operational

.1/ The Consultative Council was established by the Prices and IncomesCommission Act and consists of representatives from the government, members ofthe general public, ZIMCO, the Zambia Congress of Trade Unions, the ZambiaFederation of Employers, the Zambia Industrial and Commercial Association, theZambia Commercial Farmers' Bureau and the Zambia Consumers' ProtectiveFederation.

- 38 -

functions require it to have the capacity to execute well-defined and more

mechanical tasks, such as examining collective agreements to ensure that they

comply with the government's wage guidelines. Thus the PIC staff have three

major functions which can be classified as analytical, informational and

operational.

the analytical functions of the PIC require it to carry out economic

analysis, both on a routine basis and when special issues require attention.

It will be useful for the PIC to have the capacity for macro-economic analysis

to use in its recommendations to the government on general wage guidelines and

to help it follow trends in wages and prices in different parts of the

economy. Such a capacity is helpful, for instance, for appreciating the

relationship between the external terms of trade and the general levels of

wages and prices. In an economy like Zambia which is highly vulnerable to

external conditions, it is necessary for the formulation of a sensible wages

and price policy to have the capability to work through the effects of changes

in the prices of exports or imports, or the exchange rate, on key economic

variables.

The types of analytic work that the Commission may want to carry out

should help it to appreciate some of the following relationships: (a) the

effects on employment and unemployment of changes in wage rates in different

sectors, including increases in the minimum wage; (b) the effect on the

availability of categories of labor in short supply of changes in the wage

structure; (c) the impact on the government budget of changes in the civil

service pay scale, pay structure or pay package; (d) the effect of changes in

agricultural producer prices on rural incomes, urban-rural income

differentials, and the consumer price indices in urban and rural areas; and

- 39 -

(e) the impact of changes in import and export prices on employment, wages and

prices. The Commission will also want to be able to distinguish among

underlying causes of price increases and profit levels, in order to be in a

position to concentrate its attention on those situations where there is clear

abuse or exploitation of monopoly or excessive economic power.

It follows that priority should perhaps be given to the task of

building up the Commission's capability to carry out the economic analysis and

empirical investigations necessary to inform and support its policy

recommendations and operational decisions. These functions are not yet

adequately reflected in the staffing of the Commission. In particular, there

is a great need for general economists and statisticians to carry out the

types of analyses envisaged, as well as a capacity for the design-and

execution of quick, small-scale surveys at short notice.

In terms of informational requirements, the Commission needs to have

the capability to monitor levels and trends in employment and unemployment,

and key wages and prices, On the side of employment and wages this would

include employment and wages in key economic sectors, in the government,

parastatal and private organizations, for unionized and nonunionized workers,

by skill level, and in the organized and unorganized sectors. Price infor-

mation needed includes consumer prices in both urban and rural areas, whole-

sale prices, import and export prices, and urban-rural terms of trade. Given

the heavy burden of work which is bound to fall on the Commission, existing

sources of statistics, notably those collected by the Central Statistical

Office (CSO), will have to be used wherever possible; major data collection

and processing exercises should not be undertaken unless absolutely necessary

to obtain vital information not otherwise available. Some of the more impor-

- 40 -

tant information required is discussed in Annex II, along with existing data

sources.

The operational staff of the PIC will be responsible for a number of

areas: issuing wage guidelines; enforcing wage guidelines through its

responsibility for examining and ratifying collective agreements; giving

advice on civil service pay adjustments; and giving advice on price controls

and price levels. These tasks will require close cooperation from the

analytical staff of the PIC.

It is our opinion that on the prices side, the PIC should as a rule

avoid getting drawn in to set and control prices of individual commodities.

Rather, the Commission should be instrumental in helping to ensure an

appropriate general level of prices through its deliberations with other parts

of the government which are responsible for fiscal and monetary policies and

liberalization of the trade regime. As pointed out earlier, pricing policy

has a direct effect on the distribution of income between different groups of

the population and this will provide a guide to the PIC's concerns and its

operational work in the area of pricing. The clearest operational responsi-

bilities of the PIC are with regard to wages, through the issuance and

enforcement of wage guidelines, as well as its advice concerning public sector

pay adjustments.

Thus, taken as a whole, there are a number of areas which could be

given priority by the PIC, including macroeconomic analysis, pricing policies

and the concern for the urban informal and rural sectors, wage guidelines in

the formal sector, and public sector pay policies. we would like to offer

some assistance to the PIC in the last of these areas.

- 41 -

V. Wage Administration and Employment Policies in the Public Sector:Suggestions for a Collaborative Work Program

Although we would be interested in discussing with the PIC any of

the issues raised in this report, in this section we would like to propose a

collaborative work program between the PIC and the World Bank which focuses on

issues arising in the management of wages and employment in the public and

parastatal sectors. Given Zambian circumstances, this focus is not a

particularly narrow one. Government and parastatal employment is estimated to

account for three-quarters of total wage employment. Given the size of the

public sector, decisions affecting both compensation and employment levels in

the government and parastatals are likely to influence indirectly the private

sectors of the urban economy as well.

Government wage and employment policies may be used to pursue the

following economic objectives: increasing public resources by restraining the

growth in expenditures on public employees; encouraging improved job

performance of public sector workers; improving national distributional goals

through the use of wage equity policies; and promoting the efficient

allocation of labor resources through various adjustments in the inter-

sectoral wage structure.

In order to achieve these objectives the government can employ a

number of policy instruments. Most obvious are annual (or less frequent)

public service pay adjustments which can either increase or decrease the level

of real compensation. Such adjustments can be implemented across-the-board or

according to salary grade. As already noted, varying degrees of control on

parastatal compensation levels can be exercised through the use of unified

salary scales and the ratification of collective agreements. Government

employment policy, including promotion and termination protocols and decisions

- 42 -

either to expand or to freeze public hirings, are additional instruments which

should be noted. Finally, decisions concerning the actual structure of com-

pensation, that is, the mix of wage and nonwage benefits (housing, transport,

education allowances, etc.) are additional measures available for affecting

the budgetary, efficiency and equity outcomes of public employment.

One of the tasks confronting the PIC is to develop procedures for

evaluating how these policy interventions affect the economic objectives noted

above. In order-to achieve this understanding, a clearer picture of existing

public sector employment and compensation must be developed. With the consent

of the PIC, we would propose to carry out a study which deals with the fol-

lowing related issues, namely wage administration within the public sector and

forms of compensation. We elaborate on each of these below.

(i) Wage Administration Within the Public Sector

In order to investigate the effects of government pay policy initia-

tives, it will be useful to understand the system of wage administration

within the public sector. In this context the public sector includes all

levels of government and the parastatals. The system of wage administration

refers in part to the structure of wage payments within the public sector.

These payments are related to a number of factors including worker skill

levels, occupational categories and organizational affiliations (central civil

service, police service, ZIMCO affiliates, etc.)

Since all employees do not receive the same level of compensation, a

task of wage administration is to adjust pay differentials across classes of

workers. If inappropriate differentials prevail, the system can be expected

to show signs of stress as workers respond to existing incentives. officials

- 43 -

involved in implementing pay policy must therefore be alert to signals that

the public sector's wage structure is not producing desired results.

In recent years the Zambian government has taken steps to coordinate

the process of wage administration throughout the formal economy. One of

these steps, for example, was to establish a unified salary scale covering

both government and nonunionized parastatal employees. Even though a unified

wage scale now exists, differentials embodied in that scale, as well as

varying degrees of compliance, will determine pay differences between

government and public enterprise employees. The impact of such differentials

is something which needs to be more fully considered.

One of the steps in evaluating the system of wage administration

should be to distinguish the different organizations within the public sector

which receive somewhat distinct treatment in the setting of their wage

levels. IThe extended wage scale for nonunionized parastatal employees is one

example of this process. Other examples might include the treatment of educa-

tion services or of the police. Differences across public enterprises may be

another element of this internal process of public wage administration. In

providing this overview of the organizational character of the wage structure,

attention should be paid to the relative size of each organization, measured

in terms of employment or share of the wage bill, so that the most significant

organizations can be identified.

Once the organizational character of the public sector wage struc-

ture is specified, it may be possible to relate signals of stress within the

system to prevailing wage differentials. Since wages are set, employees may

respond to relative rewards by changing the quantity and quality of work

provided. Signals of stress within the system might include job turnover,

- 44 -

mismatching between worker qualifications and job requirements, moonlighting,

excessive vacancy rates, job queues, poor job performance, etc. Appreciating

both the character of the organizational dimension of the public sector wage

structure, as well as responses to prevailing differentials, should be a

useful first step in evaluating the effectiveness of the system of wage

administration.

other dimensions of the public sector wage structure which should be

emphasized are skill and occupation. within any particular public organiza-

tion, it would be useful to build a wage and employment matrix which disaggre-

gates the total wage bill. By so doing it will be possible to identify those

salary or occupational groups which weigh the most heavily in determining

total pay obligations. Such matrices provide simple means for evaluating the

budgetary trade-offs of granting different levels of pay increases to dif-

ferent groups or of determining possible trade-offs between increased, or

decreased, wages versus employment.

(ii) Forms of Compensation

In order to provide a complete accounting of wages and conditions of

employment or to specify correctly the wage relationships across organizations

within the public sector, a well-defined notion of compensation is required.

In essence, what needs to be included when we are discussing government pay?

Since nonwage payments, including housing and transport, are alleged to com-

prise significant shares of at least some public sector employees' total

compensation, it seems advisable to account for nonwage benefits and to

attempt some crude estimation of the nominal value of these benefits.

With improved measures of total compensation, the information avail-

able from the wage and employment matrices discussed above should offer a tool

- 45 -

for more accurate projections of total labor costs. The budgetary implica-

tions of changes in wages, fringe benefits or employment may, therefore, be

more accurate as well. Development of total compensation measures will

facilitate pay comparisons within the public sector. Since public enterprise

employees are believed to receive disproportionately more nonwage benefits

than government workers, the estimation of total compensation statistics will

contribute to the evaluation of intra-public sector wage differentials. Total

compensation estimates should also be used in determining whether wage

guidelines have been adhered to. If wage increases conform to the wage

guidelines set by the PIC but fringe benefits, assuming that they account for

a significant share of total remuneration, rise by an amount above the

guidelines, the intent of the wage control orders may not be fully realized.

A corollary to this problem is also worth noting. If a significant share of

total compensation is in fringe benefits and if these fringe benefits are paid

in kind (for example, housing or health care), then the increase in the costs

of these fringe benefits and hence in the nominal value of compensation will

be partially linked to the price increases of the goods in question. By

relying on in-kind forms of compensation, government expenditures on public

employees can rise appreciably regardless of existing wage guidelines. The

significance of this point is that, from a budgetary perspective, the

government should be aware of the payment obligations it locks itself into as

a result of the forms of compensation it chooses to adopt.

In addition to clarifying the costs of existing practices of compen-

sation, another objective of a review of the structure of government pay would

be to relate different forms of payment to workers' incentives. For example,

do fringe benefits tend to increase or decrease compensation differentials

- 46 -

across all skill categories, or how are cash versus nonwage benefits adminis-

tered in order to reward superior job performance? As part of a discussion of

forms of compensation and job performance, there should be a review of termi-

nation and promotion policies, merit pay increases, classification schemes for

temporary versus permanent employees, and any other administrative procedures

which are critical to an employee's status and subsequent level of pay.

Understanding various elements of the system of public sector wage admini-

stration will help in predicting responses to changes in wage policy and

should, therefore, contribute to improving policy interventions.

In conclusion, we would like to propose a collaborative work program

which would permit the World Bank to contribute to background information

which should prove valuable to the Commission in its evaluation of wage policy

alternatives. The initial focus of this work will be on public sector wage

and employment issues and the work will deal with the institutional features

of government and public enterprise wage setting and employment.

Tb set this work in motion, we would like to discuss this report

with the Zambian government in early 1984 and to reach agreement on a

collaborative program of work. During this mission we would hope to work with

the PIC to set up a system for assembling information on employment and the

various components of pay which would permit the PIC to evaluate public sector

wage and employment developments in the future. Such a task will most likely

require the cooperation and assistance of a number of government agencies,

such as the Personnel Division, the Public Service Commission, the Ministry of

Works and Supplies, the Ministry of Labour and Social Services, and the

Central Statistical Office. We hope to return to Zambia in mid-1984 and,

together with the PIC, evaluate the issues of wage administration raised in

- 47 -

this proposal. We plan to submit a report on "Wage Administration and

Employment Policies in the Public Sector" to the Zambian government by the end

of 1984. It is hoped that the analysis proposed in this work program can

assist the PIC in formulating policies consistent with national economic

objectives.

- 48 -

ANNEX I: WAGE TRENDS AFTER INDEPENDENCE

Trends and Disparities in the Formal Sector

Tb shed light on the present wage situation, the following briefly

reviews past developments in relative wage trends for different groups and

various sectors. Disparities between Zambians and non-Zambians, as well as

between mining and other sectors, have been of major concern for the past two

decades. The Zambian government initiated wage policies aimed at reducing

these differentials soon after Independence 1/ and has continued to address

this problem throughout the various stages of development planning during the

1970's. Although the earnings gap between Zambians and non-Zambians has

narrowed considerably, expatriates still earned over four times what native

Zambians did in 1980. 2/ Earnings in the mining sector have also remained

significantly higher than the average earnings of all workers (Annex Table 1).

See J. Fry, Employment and Income Distribution in the African Economy,Croom Helm, London, 1979, Chapter 5.

2/ Data on earnings in this section relate to average earnings of employeesin the formal sector based on information from the Employment andEarnings Survey of establishments. The series suffers from severalinconsistencies, among them (a) the annual average is based on 4th-quarter estimates after 1966; (b) certain fringe benefits and noncashearnings were excluded from 1970 onwards; and (c) after 1972 theclassification of employees changed from ethnic group to citizenship (seeAppendix Table 1), making the series not strictly comparable with regardto this disaggregation. It was not possible to examine earningsdifferentials by skill classification because occupational data were notreported. It is estimated that formal sector employment constituted only22 percent of the labor force in 1979. Thus, for the majority of thelabor force, and for the informal sector in particular, information onwage trends does not exist.

- 49 -

ANNEX TABLE 1: AVERAGE REAL EARNINGS OF EMPLOYEES(Kwacha p.a. in 1975 prices)

1965 1970 1975 1980

Mining and QuarryingZambian 1,570 2,179 1,478 1,668Non-Zambian 10,034 10,254 6,784 5,278Zambian as % of non-Zambian 15.6 21.3 21.8 31.6

All SectorsZambian 890 1,210 1,140 1,134Non-Zambian 6,476 7,207 5,572 4,601Zambian as % of non-Zambian 13.7 16.8 20.5 24.6

Source: Appendix Table 2a.

Following an initial increase in the level of employees' earnings

during the late 1960's and early 1970's, real earnings have been declining.

By 1980, earnings of Zambians in real terms had fallen to the level of 1968;

non-Zambians witnessed an even greater decline whereby real earnings had

fallen 36 percent from 1970. The latter is partly due to the Zambianisation

program in which some supervisory and technical positions formerly held by

expatriates were eliminated or replaced by local staff. From data presented

in Annex Table 2, it appears that general salary increases granted by the

government in 1971 and 1975 were not enough to keep wages in line with

inflation. The impact of the salary awards is reflected in the fact that real

earnings would go up only a year or two immediately following the increase,

after which they would become eroded again. Data are not yet available to

determine the effects of the 1980 increases but indications are that they will

only temporarily improve the living standards of most employees.

- 50 -

ANNeX TABLE 2. INDEX OF AVERIAGE REAL EARNINGS OF EMPLOYEES BY SECTOR. 1965-80 I,(1970-100)

1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980

Agriculture. Fore.try P itchlngZublan 66.5 66.7 89.0 107.3 106.1 100.0 95.7 111.8 101.4 99.6 92.1 103.3 91.3 88.8 102.8 105.3Non-Za.blao 69.4 85.0 81.8 95.3 97.3 100.0 89.8 63.0 48.3 44.4 39.7 47.3 41.1 27.5 50.5 45.7

Mining & QuarryingZambian 72.1 74.0 99.8 85.0 93.9 100.0 95.9 93.1 92.1 86.0 67.8 97.0 84.9 69.8 83.5 76.5Non-Zamblan 97.9 114.3 125.3 115.1 118.8 100.0 96.0 62.1 62.3 70.1 66.2 86.6 76.8 50.7 50.9 51.5

Mn-factarlngZanblon 81.6 72.9 97.0 84.3 95.1 100.0 111.2 114.7 111.8 104.1 104.1 126.0 94.8 100.1 95.7 93.8Non-Z"blan 76.9 83.2 99.5 84.3 101.2 100.0 120.2 87.9 95.3 83.8 74.5 98.2 75.2 83.5 93.9 69.1

ConStructlonZamblan 71.2 66.6 95.6 112.0 94.4 100.0 102.7 103.6 100.2 91.7 88.8 88.7 72.2 84.2 83.0 93.6Non-Zaablan 67.6 71.6 81.0 91.9 87.5 100.0 88.2 57.4 52.7 48.9 70.8 36.5 33.6 45.7 41.4 39.7

Tr-u.port cnd CounicationaZmblan 54.0 69.5 89.8 82.1 87.7 100.0 116.4 89.2 09.9 90.0 107.3 90.1 86.4 72.7 90.1 76.5Non-Zablan 86.3 119.2 95.6 90.5 90.0 100.0 119.1 79.1 17.8 75.9 110.9 68.7 70.3 68.2 76.2 77.9

Services 2/Zambian 77.7 79.2 101.9 99.2 102.6 100.0 100.1 127.4 120.3 120.5 111.3 109.1 94.3 93.7 101.1 102.4Nlo-Zambhan 93.0 93.9 96.9 98.3 112.8 100.0 98.3 99.0 101.7 96.9 88.4 65.1 70.2 70.2 67.1 77.3

All Sectors 3. 95.4 89.9 104.7 98.3 101.4 100.0 98.1 100.9 104.2 97.4 89.2 94.1 81.7 74.4 79.7 77.1Z-blan 73.6 73.1 97.4 93.7 96.8 100.0 101.0 106.2 111.7 102.1 94.2 102.8 90.9 86.9 95.7 93.7Non-Zlablan 89.9 101.4 104.7 100.2 107.2 100.0 100.1 80.2 81.2 81.1 77.3 82.0 72.3 62.6 62.7 63.8

I/ 1965-66: average of 4 quarters; 1967-80: 4th-qoarter figures; earnings data for lsbians deflated by lou-l...e. urban CPI, and for non-Z..blana by high-ioco-e urban CPI.

2/ Exclude. donatic servants; includa electricity, water and sanitary services, financial end business services. restaurants and hotels, and other services.

Source: AppendIx Table 2a.

- 51 -

Even though real earnings have been declining for Zambian workers as

a whole, the rate at which this has occurred varies among sectors. Earnings

in the mining sector, whose share in total employment has also declined (Annex

Table 3), have fallen relatively more than those of other industries. On the

other hand, earnings in the service sector have for the most part kept up with

price increases and this has been accompanied by comparatively high employment

growth. In comparing the distribution of employees in the formal sector over

the past 15 years, indications are that there has been a shift in employment

away from agriculture and mining activities into manufacturing and services.

However, in the absence of information on other components of the labor

market, (i.e., the type of information collected in labor force surveys), it

is difficult to assess the employment situation in Zambia or to determine its

relation to wage movements.

ANNEX TABLE 3: PERCENT DISTRIBUTION OF ZAMBIAN EMPLOYEES BY SECTOR,1965-1980

AnnualGrowth Rate

1965 1970 1975 1980 1970-80

Agriculture, forestryand fishing 14.1 10.8 9.6 8.8 -0.76

Mining & quarrying 19.6 16.5 15.1 15.9 0.92

Manufacturing 10.5 11.2 11.4 12.8 2.67

Construction 18.9 21.0 18.8 11.7 -4.44

Transport & communications 5.2 6.2 5.7 6.4 1.57

Services 31.7 34.3 39.4 44.5 3.98

Total 100.0 100.0 100.0 100.0 1.31

(228,180) (315,580) (361,170) (359,440)

Source: Appendix Table 1.

- 52 -

Earnings in the Public, Parastatal and Private Sectors

The public and parastatal sectors provide employment for the majority

of Zambians in the formal sector, each accounting for 38 percent of the formal

sector work force in 1980. while employment in the private sector has been

declining between 1975 and 1980 at the rate of 6.2 percent per annum, the

public and parastatal sectors grew at 1.7 percent and 3.3 percent per annum,

respectively (Appendix Table 3). Over 70 percent of all public employees are

in the service sector; the largest single group of employees in the parastatal

sector is engaged in mining, and the private sector provides employment for

the bulk of workers in manufacturing. In 1980, average earnings in the

parastatal sector were significantly higher than earnings in the private

sector (33 percent). Public sector earnings were the lowest at 41 percent

below that of parastatals (Annex Table 4). Since 1975, real earnings of

parastatal employees have remained above those in the other two sectors;

public sector earnings were higher than private earnings prior to 1978, but

since then the reverse has been true. The existing situation is substantiated

by the fact that, while real earnings in the parastatals have been maintained,

real earnings in the public sector declined by 16 percent between 1975 and

1980, and private sector earnings increased by 14 percent (Appendix Table 4a).

Public Sector Salaries, 1967-1980

Increases in public sector salaries are granted based upon the

recommendations of salaries review commissions appointed by the government;

there have been four such commissions since Independence. Annex Table 5

compares the basic salary awards of each commission for a few selected groups

of government employees. The data show that public sector wages in real terms

have been declining, particularly for higher-level personnel. This reflects

the government's attempt to narrow the gap between higher- and lower-paid

- 53 -

ANNEX TABLE 4: NUMBER AND AVERAGE ANNUAL EARNINGS OF ZAMBIAN EMPLOYEES IN THE PUBLIC, PARASTATAL AND PRIVATE SECTORS, 1980 1!

Employees Average Annual Earnings (Kwacha)

Public Parastatal Private Total Public Parastatal Private Total

Agriculture, forestry & fishing 11,070 10,950 9,560 31,580 1,378 1,055 668 1,051

Mining and quarrying - 56,840 270 57,110 - 3,395 1,371 3,385

Manufacturing 700 20,880 24,280 45,860 1,675 2,341 2,008 2,156

Construction 25,290 - 16,780 42,070 1,662 - 1,592 1,634

Transport & communications 990 19,830 2,220 23,040 1,403 2,728 2,554 2,654

Services 2/ 97,700 27,920 34,160 159,780 2,119 2,539 2,746 2,326

TOTAL 2/ 135,750 136,420 87,270 359,440 1,966 2,774 2,082 2,301

1/ 4th-quarter figures.2/ Excludes domestic servants; includes electricity, water and sanitary services, financial and business services, restaurants

and hotels, and other services.

Source: Report on Employment and Earnings, 1980, Tables 3.0 and 3.1.

- 54 -

ANNEX TABLE 5: PUBLIC SECTOR SALARIES: GENERAL SUPERSCALES AND ADMINISTRATIVE SCALES(Ywacha)

1979January 1, 1967 May 1, 1971 July 1, 1975 (Turner + August 1, 1980(Whelan) (O'Riordan) (Mwanakatwe) Mwanakatwe) (Muchangwe)

Scale (1980) Nominal Real 1! Nominal Real - Nominal Real V/ Nominal Real V Nominal Real 1Y

S3 Undersecretary, Director 6,250 10,557 7,600 10,201 7,812 7,812 7,944 4,678 10,176 5,373

S7 Assistant Director, Deputy Chief 5,120 8,649 5,800 7,785 6,324 6,324 6,468 3,809 7,440 3,928

S12 Entry poinJ/for university 2,184 3,592 2,340 3,116 2,976 2,976 3,132 1,725 3,852 1,898graduate - (1,896) (3,118) (2,052) (2,732) (2,604) (2,604)

S13 Entry point for diploma graduates; 1,728 2,842 1,860 2,477 2,388 2,388 2,544 1,401 3,264 1,609vocational and technical training

S21 Lowest-paid salaried employee 312 513 396 527 540 540 696 383 984 485

Non-civil service employees ofgovernment, laborers N.A. N.A. 342 455 480 480 636 350 840 414

1/ Real salaries are expressed in 1975 Kuacha; S3 and S7 salaries are deflated by high-income urban CPI, the others by low-income urban CPI.

2/ Prior to 1979, university graduates entered at a lower point on the salary scale (shown in parentheses). The figures given are for salariesfor the same entry level as in 1980.

Note: Salaries reported are the minimum in each category except for specified entry points.

Sources: 1967 and 1971: Government Paper No. 1: Report of the Commission Appointed to Review Salaries, Salary Structures and Conditions of Service ofthe Zambian Public Service and the Defense Force, May 1971, Appendix A and conversion table No. 48 of the main report.

1975: Government Paper No. 1: Summary of the Main Recommendations of the Commission of Inquiry into the Salaries, Salary Structures andConditions of Service, Together with the Party and Government Reactions to the Recommendations, 1975, Appendix B and C.

1979 and 1980: Government Paper No. 3: Siumary of the Main Recommendations of the Administrative Committee of Inquiry into the Salaries,Salary Structures and Conditions of Service, Together with the Party and its Government's Reactions to the Recommendations, 1980, Appendix Band K.

11

- 55 -

employees. In 1967, a person in the S3 category was earning 20 times what the

lowest-salaried employee earned. In 1980, this differential was only 10

times. However, because higher-level officials are entitled to many more non-

cash benefits, their total incomes may not have declined as much as the basic

salary trends seem to indicate. Certain benefits such as transportation,

entertainment allowance, pension rights, and domestic help accrue only to

high-ranking officials. Furthermore, housing allowances are biased in favor

of those who earn more, and in particular those who own their homes. 1' On

the basis of information from the 1975 and 1980 commission reports, the

following are rental allowances corresponding to the various salary levels:

ANNEX TABLE 6: ROUSING RENTAL ALLOWANCES(Rwacha p.a.)

1980 1975

Rental Allowance Rental AllowanceScales Salaries Single Married Salaries Single Married

S3 (Director) 10,176 7,812480 840 240 480

S7 (Deputy Chief) 7,440 6,324

S12 (University graduateentry point) 3,852 2,976

240 480 120 240S13 (Diploma holder

entry point) 3,264 2,388

S21 (Lowest-salariedemployee) 984 180 360 540 144 144

1/ Housing allowances are granted to: (a) Those who make their ownarrangements to rent a house. This allowance ranged from K360 to K840p.a. for a married employee in 1980, depending on his salary. (b) Thosewho own their homes. Based on the value of the house, this allowanceranged from K840 to K3600 p.a. in 1980.

- 56 -

It appears from the above that recent increases in housing

allowances have benefitted married employees in the lower groups relatively

more. Although information on money earnings and housing benefits indicates

that real differentials between high- and low-level employees have in general

been declining, more information regarding changes in the total compensation

package is needed before any conclusions can be made concerning the relative

position of employees in the lower end of the pay scale.

-57-

ANNEX II: DATA REQUIREMENTS

(a) Labor Force and Employment

In order that the Commission be able to formulate effective wage

policies and determine their impact on various groups, some very fundamental

information on labor force and employment must be collected and analyzed. It

will be desirable to obtain up-to-date data on the size and growth of the

labor force, and the composition of the work force by industrial sector,

occupational structure, public (including state and local government

breakdown), private and parastatal, urban-rural and province. In addition,

details pertaining to the employed (e.g. employment status, occupation and

industry) and unemployed (e.g. rate, characteristics, and seasonality) need to

be examined. This type of information is a prerequisite for analytic work on

such topics as relationships between wages and employment; manpower require-

ments and skill shortages; effects of changes in import and export prices on

employment; and locational and structural disparities.

At present, data sources providing the kind of information described

above are virtually nonexistent. Results of the 1969 Population Census are

outdated; and because it was conducted during the agricultural slack period

(August), underestimated the number of persons in the labor force. The 1980

Population Census which collected information on the economic activities of

individuals will provide some basic data. However, in the future it will be

useful to set up a system of regular labor force surveys to be conducted once

or twice annually. These surveys should be well defined and involve a repre-

sentative sample of households for all Zambia. The methodology should be well

thought out and questions should be formulated to provide coherent and system-

- 58 -

atic information on employment, wage and income. The aim of these surveys

should be to establish a continuous data series which will serve as a basis

for subsequent policy action.

The only source available on employment is the Central Statistical

Office's Enployment and Earnings Survey 1/ which covers only the formal

sector. Thus, the information provided is limited and should be used with

caution, particularly with regard to a) incomplete coverage of establishments

which therefore means an underestimate of employment; b) nonresponse by

establishments which results in estimates being made by survey personnel; and

c) the exclusion of self-employed and informal sector employees and the fact

that information on employers and proprietors are not reported which limit the

usefulness of the survey.

Since formal sector employment accounts for only 22% of the labor

force, it is clear that more effort should be made to understand the workings

of other components in the labor market. Employment in the urban informal

sector and in rural areas have been studied in the past by various research

teams. However, information is sketchy and fragmented, making it impossible

to determine accurately the overall size of these sectors and their role in

the economy. Efforts to piece together information from such disparate

sources as the Agricultural and Pastoral Production Surveys and the Zambia

National Provident Fund to arrive at some estimate of the work force are

inaccurate and misleading. Thus, it should be a primary concern of the PIC to

mobilize its efforts in order to eliminate informational gaps such as this.

1/ And the Manpower Survey which is basically the same survey but collectsadditional information on occupation and, supposedly, earnings by occupation,but the latter is not reported in the published volumes.

- 59 -

(b) Earnings/Wages

The formulation of appropriate policy action with regard to wages

requires a thorough understanding of the present situation. Ideally, the PIC

would want to collect wage data by the same disaggregation as described pre-

viously for employment. However, wage data hardly exist and, in the future,

it will be important to collect this information either as part of the labor

force survey or by doing specific studies. Clarification with respect to

definitions and terminologies should be made from the start. For example,

wage rate (remuneration per hour, day, week, year) should be distinguished

from earnings (which include gratuity, bonuses, overtime, allowances, etc.),

as well as from total pay (which includes all cash and noncash fringe bene-

fits). In its analysis of wage relationships, the PIC should take account of

the total compensation package. This implies getting employers and unions to

assess the real costs of labor and to quantify noncash benefits so that they

may be included in the analysis of pay differentials. It must be emphasized

that fringe benefits constitute a significant portion of the total pay

package, and, owing to recent wage ceilings, have become an increasingly

important means of raising workers' incomes.

In setting up the data base for wage analysis, the PIC should focus

on collecting data which would best serve its purpose in terms of assessing

current situations and formulating appropriate policy instruments. For

example, an analysis of wage differentials between urban and rural areas or

between various provinces could shed light on the problems of income inequi-

ties and rural poverty. Concern over effective manpower planning policies and

labor shortages in certain occupations would warrant a look at skill differen-

- 60 -

tials. If possible, an assessment of formal-informal sector earnings dispari-

ties would provide a better understanding of the employment situation and

general labor market condition.

Within the formal sector where the government and parastatals domi-

nate, pay differentials between these and private organizations are parti-

cularly important. In the past, there has been an attempt to narrow the

salaries gap between the government and parastatals to discourage civil

servants from moving to the parastatals. It would be relevant for future

development planning to determine differences between these sectors with

respect to salary scales and procedures employed in the wage-setting

process. A possible first step could be to select several occupations common

to all three sectors, and compare their basic salaries across the board. In

addition, a list of fringe benefits could be constructed for each selected

occupation in each sector to build up a total pay package. Information on the

government sector could be drawn from the Muchangwe Report, the parastatal

sector from ZIMCO pay scales, and the private sector from a few privately-

owned companies.

Within the parastatal and private sectors, there is also a wage

relationship between the unionized and nonunionized workers. The PIC needs to

monitor the trend in negotiated pay increases contained in collective agree-

ments for unionized workers. Wage information for nonunionized workers should

also be collected and monitored, perhaps through labor force surveys or as

part of the Employment and Earnings Survey.

The primary data source presently available on formal sector

earnings is the DEployment and Earnings Survey described in the employ-

ment section. The survey provides earnings information by industrial sector,

- 61 -

public - parastatal - private sectors, ethnic group, and province (although

not reported in the published volumes after 1971). Annual figures are aver-

age earnings of a particular quarter multiplied by four. Average quarterly

earnings are total quarterly earnings divided by the number of employees.

Because the data are averages, they should be relied upon only as indica-

tors of gross relatives and trends. The levels of earnings should not be used

without additional substantiation from other sources. The margin for error is

high both in the numerator (i.e. what different establishments include as

earnings) and in the denominator (i.e. whether or not unpaid family workers

are included and the inclusion of piece-rate workers regardless of the amount

they earn).

Other sources with wage information include the Department of Labor

Annual Reports and the records of the Industrial Relations Court. The

Department of Labor collects data on basic pay scales for different

industries. If these could be augmented with information on fringe benefits,

comparisons of total pay could be made between various groups for different

years. Industrial Relations Court records could provide similar kinds of

information based on wage settlements.

(c) Government Expenditure

As pointed out in Section II.3, a central issue requiring investi-

gation by the PIC involves the relationship between the pay package and the

government's wage bill and the impact of the latter on the budget. Before

this assessment can be made, the PIC must obtain information on the total wage

bill. Information on actual government expenditures is provided in statement

C of the Ministry of Finance's Financial Report. However, wage and allowance

- 62 -

data which appear under the heading 'Personal Emoluments' and 'Recurrent

Departmental Charges' are not summarized for Zambia but are disaggregated by

Ministry/Department, of which there are approximately 170. 1/ As a first

step, the PIC will need to obtain a yearly summary of government salaries,

housing and other allowances, as well as total wage payments for classified

daily employees. In the future, the PIC should also attempt to get estimates

of noncash fringe benefits (e.g. provision of housing, transportation, and

servants) and the total employment as well as wage payments to classified

daily employees.

(d) Prices

(i) Consumer Prices: The Central Statistical Office (CSO) collects

retail prices on a monthly basis from a number of retail outlets in urban

centers for a number of commodities which make up the consumer price index:

400 for the low-income group and 600 for the high-income group. 2/ They are

reported in the Consumer Price Statistics Quarterly as well as the Monthly

Digest of Statistics.

Price information, if properly collected, can serve as valuable

market signals and point the way to appropriate price adjustments. Unfor-

tunately, because of price controls in the past, the collection of price data

as was carried out by the CSO has not been as useful as it might have been.

1/ Summaries of total 'Personal Emoluments' and 'Recurrent DepartmentalCharges' are provided in the Estimates of Revenue and Expenditures volumes.

2/ In 1975, low-income included urban households with gross monthly incomesof less than K100, and high-income included urban households with grossmonthly incomes of K300 or more.

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The CSO prices included in the consumer price indices are those

charged by conventional retail outlets such as shops, supermarkets and

markets. 1/ 'Blackmarket' prices are not included even when the only way to

obtain an item is through the blackmarket. In such a case the shop price at

which previous supplies were sold is used in the price index. Three reasons

are given for not using blackmarket prices in the price indices: they are

difficult to collect on a regular basis; they would cause the index to

fluctuate excessively; and the change in the cost of living is unaffected if

the blackmarket price is always a constant percentage above the normal retail

price. The CSO itself points out that the differences between the market

prices and the usual prices (when available) for some essential commodities in

early 1981 were well over 100%. In a more extreme case, the price of a scoop

of salt (weighing 118 grams) was 20n, or equivalent to K1.69 per kilogram,

whereas the usual price when salt was available was 23n per kilogram, implying

a difference of 635%. The price indices therefore failed to capture the

fluctuations caused by shortages and blackmarkets. Moreover, no rural price

data have ever been collected, so that we cannot compare urban and rural price

levels or the differences in the trends of these over time. In the same way,

since prices are not collected for varying units of commodities for which the

poor can only buy in small quantities (see Appendix Table 6), we cannot

properly compare the cost of living of the low- and high-income groups at any

point in time.

- 64 -

(ii) Wholesale prices are collected by the CSO from a number of

wholesale outlets on a quarterly basis, and reported in the Monthly Digest of

Statistics. The PIC should work with the CSO to keep a comprehensive, up-to-

date list of outlets and to minimize data processing time.

(iii) Producer prices are also collected for some commodities by

the CSO and published in the Annual Agricultural Statistical Bulletin.

However, the data for a number of items produced in the rural areas are not

available in the form of a continuous series. The PIC will need this

information to calculate the rural-urban terms of trade (discussed below).

(iv) Prices of commodities produced by parastatals could be

obtained from ZIMCO subsidiaries. They generally keep these statistics up-to-

date.

(v) Import and export prices are necessary for monitoring movements

in the terms of trade facing Zambia. These are collected by the External

Trade Section of the CSO. Export prices relate primarily to metals and are

straightforward. However, import prices which are presented only in the form

of import price indices by industry are not useful in their present format.

The PIC should investigate what form the raw data take and whether these can

be made available.

(e) Rural-Urban Terms of Trade

Changes over time in the standard of living of the population in

rural as compared with urban areas can be measured by constructing terms-of-

trade indices. In the past, these indices have been formulated by various

people (Turner, Maimbo and Fry, Young, Jolly) using different methods and

employing different data bases. Rather than review the results from these

-65 -

studies, it will be more useful to set out what kinds of data the PIC will

need and how it may wish to proceed in constructing such indices. The

following is based primarily on Maimbo and Fry's analysis. 1/ The barter

terms of trade measures the purchasing power of a representative fixed

quantity of African farmer's produce in terms of units of goods bought from

the urban sector. These are price terms on which rural agricultural producers

trade with urban nonagricultural producers. The income terms of trade

measures the real purchasing power of all farm cash income. It is an index of

real income of Zambian farmers, since it takes into account changes in output

as well as prices of agricultural commodities. These two indices can be

expressed as follows: 2/

Barter Terms of Trade = Index of Agricultural Producer PricesCost-of-Living Index for Urban Products

Income Terms of Trade = Index of Value of Total Marketed Output of Farmers 3/'Cost-of-Living Index for Urban Products

1/ See Fabian J.M. Maimbo and James Fry, "An Investigation into the Change inthe Terms of Trade between the Rural and Urban Sectors of Zambia,"AfricanSocial Research, No. 12, December, 1971.

2/ These indices could also be constructed for the entire agricultural sectorwhich includes both commercial and small-scale units.

3/ Ideally, if data on value added in agriculture were available, this shouldbe used instead of total marketed output.

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To gather information to calculate the above is difficult because of

lack of data. Ideally, the PIC will need to set up data series dating from

1965 to the present for:

(i) The value of total marketed output: This entails the selec-

tion of a group of agricultural goods typically produced by small farmers.

This would most likely include maize, tobacco, cotton, groundnuts, fish,

poultry, eggs, beef, etc. To derive the total value for each commodity, the

PIC would have to collect:

a) Production/output data. These are available from the CSO

and published (although incompletely) in the Annual Agricultural Statistical

Bulletin and the Monthly Digest of Statistics. Data are provided either as

'crop intake by official marketing organizations', 'sales of commodity in

Zambia', or 'marketed production of some crops'. In constructing the time

series, adjustments of the data may be necessary because the unit of measure

often changes. Furthermore, output should be in per capita terms, and if this

is not available, some correction should be made for the fact that part of the

increases in production may be due to increases in the number of farmers

selling produce rather than increases in the amount sold by each farmer.

b) Producer prices. These are available for most crops and

cattle in the same sources as above. However, for such items as fish, poultry

and eggs, the data were not reported. The PIC should try to fill this gap

with the help of the CSO.

(ii) Cost-of-living index for urban products: As mentioned in

section (d), there are severe limitations in the usefulness of the price data

presently available. Owing to lack of cost-of-living indices, the urban low

income consumer price index excluding food has been used in the past as the

- 67 -

deflator. However, because the urban consumer price index is not representa-

tive of the consumption pattern of small-scale farmers, Maimbo and Fry con-

structed their own cost-of-living index based on a budget survey of heads of

households and price inquiries in local stores in several southern villages.l/

It was an attempt to get a more precise estimate of the consumption basket of

small-scale farmers for urban goods and the prices they had to pay at local

townships. Based on the methodology used in Maimbo and Fry, the PIC could

easily construct up-to-date indices, provided data as described above could be

obtained. This information could give insights into the relative income

position of the rural population vis-a-vis their urban counterparts.

(f) Household Budget Survey

A comprehensive nationwide household survey is long overdue. The

last household survey was conducted in 1974/75. Because these surveys supply

additional information which is complementary to that from other sources

previously discussed, they should be conducted periodically. The data will

provide information on income distribution in Zambia, rural-urban, formal-

informal and provincial income differentials, and more up-to-date consumption

weights for use in constructing price and cost-of-living indices.

1/ See Maimbo and Fry, p. 99.

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APPENDIX TABLE 1: NUMBER OF EMPLOYEES IN THE FORMAL SECTOR!1965-1982

1965 1966 1967 1968 1969 1970 1911 1972 1973 1974 1975 1976 1977 1978 1979 1980 199l 1982 1983

Agriculture, forestry b fishing 32,700 33,850 37,240 36,370 36,890 34 610 39,320 31,140 31,730 33,610 36,100 32,500 30,800 31 610 31,850 32,630 36,420 35,210 35,200Zeabian 32,070 33,380 36,690 35,790 36,350 38,740 29,640 30 330 32,160 34,793050 31,580 35,540 34,110 34,330Noo-Zaablao 630 470 550 580 540 520 580 1,500 1,400 1,450 1,310 1,270 1,310 990 1,000 1,050 880 1,100 870Mining snd quarrying 52 360 53,770 54,930 54,840 55,850 57 640 58,160" 60,650 61 740 65,110 64,750 64 360 64,800 61 060 61 980 63,070 60, 59 ,530 57 730Zambien 44,820 46,490 48,400 48,900 50,290 523 52,800 49,470 50,420 54,440 55,360 56,470 53,70 55,620 57,110 54,970 54,470 53,740Non-Zambian 7,540 7,280 6.530 5,940 5,560 5,510 5,360 11,180 11,320 10,840 10,310 9,000 8,330 7,360 6,360 5,960 5,620 5,060 3,990Manufacturing 27,770 31,580 32,840 34,820 34,570 38 160 42 020 43,300 43600 44070 44 330 43 080 45 770 45 980 44 960 47 760 47,880 48 400 4 79aZa bian 24,030 28,210 29,980 32,000 31,95920 40,020 40,040 40,970 41,230 40,380 43,300 43,60 4 4 46 760 47.210Non-Zaabi-n 3,740 3,370 2.860 2,820 2,620 2,930 3,000 3,280 3,140 3,100 3,100 2,700 2,470 2,310 2,000 1,900 1,680 1,640 1,580Construction 45,320 62,680 65,310 67,050 62 060 68,740 65,870 72,320 70 490 70 580 71,750 50,270 49,770 44,940 42 380 43,750 36,540 32,900 32,110Zasbian 43,100 60,310 0 64400 59 690 663220 63,140 68,230 t6 6 30 6 627 67,790 47,150 46,770 42,660 40,360 42,070 35,010 31,650 31,060Non-Zambtan 2,220 2,370 2,610 2,650 2,370 2,520 2,730 4,090 3,960 4,310 3,960 3,120 3,000 2,280 2,020 1,680 1,530 1,250 1,050Transport and comunications 14,560 20,280 21,020 22,630 22.530 22,340 22,580 25,040 24210 22,150 22,050 20,540 20 770 22,330 24560 2 24,530 23880Za-bian 11,870 17,670 18,430 19,860 19,630 19,720 21,010 23,240 22470 20,530 20,490 19,300 19,650 21,350 23,530 23,040 23,630 23,310 2 3,80Non-Zeabian 2,690 2.610 2,590 2,770 2,900 2,620 1,570 1,800 1,740 1,620 1,560 1,240 1,120 980 1,030 900 900 830 800Services 2/ 88.350 87,090 97,740 103,490 116,390 121 480 137,590 135,480 141,670 149,370 154,510 158,040 158,540 161,090 168,140 168,150 167,760 167,330 166,090Zeabian 72.290 73,510 83,510 89,200 102,560 108,200 124,290 123,190 712974 137,390 142,430 147,560 148,360 151,180 158,010 159,780 159,870 159,750 158,850Non-Zambian 16,060 13,580 14,230 14,290 13,830 13,280 13,300 12,290 11,930 11,980 12,080 10,480 10,180 9,910 10,130 8,370 7,890 7,580 7,240Tot-1 2/ 261,060 289,250 309,080 319,200 328,290 342,970 365 540 367,930 373 440 384,890 393,490 368,790 370,450 367,010 371,870 379 3nO 37l720 367,5 T1 180)IZambian 228,180 259,570 279,710 290,150 300,470 315,580 339,000 333,790 340,050 351,590 361,170 340,980 344,040 343,180 351,330 359,440 355,220 350,050 348,270Non-Zambian 32,880 29,680 29,370 29,050 27,820 27,390 26,540 34,140 33,390 33,300 32,320 27,810 26,410 23,830 22,540 19,860 18,500 17,460 15,530

1/ 1965-66; average of 4 quarters.1967-68: sverage of 2nd and 4th quarters.1969-80: 4th-quarter figures.1981-83: preliminary June figures.

2/ Excludes domesttc servants; includes electricity, water 6 sanitary services, financial and business services, restaurant. and hotels, and other services.Note: Beginning in 1972, the basis of classification changed from ethnic group, i.e., 'African' and 'non-African', to citizenship, I.e., 'Zabian' and -non-Zambian'. This should be kept In mind whenlooking at the disaggregation by group within each sector. (The 1969 population census indicates 96.3 percent of Africans hold Zambian citizenship, while 20.2 percent of non-Africans haveZambian citizenship; of the total population, 95.4 percent are Zanblan while 98.8 percent are African.)

Sources. 1965-1968: Report on Employment and Earnings 1966-68, Table 2.1969-1971: Report on Employment end Earnings 1969-71, Tables 2.0, 2.1, 2.2.1972-1978: Monthly Digest of Statistices, July/Septenber 1982, Table 6(a) and Supplement Table 1.1979-1980: Report on Employment and Earnings, 1979 and 1980, Table 2.0.1981-1983: Preliminary figures supplied by the CSO.

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APP9tUDIX TABLE 2: AVERAGE ANNUAL EARNINGS OF EMPLOYEES BY SECTOR 1/,1965-80(Kwacha)

1965 1966 1967 1968 1969 1970 1971 1 1972 1973 1974 1975 1976 1977 1978 1979 1980Agriculture, forestry 4 fishing 214 229 307 412 415 410 411 j 529 515 538 528 716 762 784 1,060 1,l9S

Zambian 171 II 266 356 361 0 3448 34 TW 1W m i04 639 7 919 1,051Non-Zambian 2,364 3,040 3,076 3,893 4,144 4,477 4,249 3,148 2.596 2,602 2,524 3,490 3,547 2,667 5,443 5,496Mining & quarrying 1 481 1 701 2 069 1 936 2,085 2 087 2,100 2 230 2,367 2.522 2,322 3,600 3 669 3Ida 3,875 4 .ll1ambian 9 3 4 1326 T1~ 248 1,412 1,53 1,569 1601i 1 685 1,701 1,478 2,510 2,632 2,521 3,306 3,385Mon-Zambian 5,378 6,598 7,608 7,604 8,174 7,229 7,336 i 5,014 5.406 6,629 6,784 10,304 10,704 7.940 8,853 9,996Manufacturing 841 807 999 925 1,078 1,151 1.364 1,159 1,428 1 408 1,455 1,726 1,859 2270 2,420 2467

Z____b____

946 __ * 148 148 ,5 2 18529 2 2706Zambien 486 478 ME 11 744 802 946 1025 1,064 1,071 1,179 1,696 1,529 1,8 1,968 2,156Non-Zambian 3,128 3,556 4,472 4,116 5,154 5,351 6,795 ,5248 6,119 5,866 5,657 8,650 7,758 9,672 12,106 9,931Construction 478 467 666 850 756 837 900 ! 911 921 939 983 1,105 1,101 1,481 1,559 1.R51Zblabn 322 131 500 ITT 560 609 663 Toy 7E 711 764 906 883 1,199 1,296 1,634Non-Zamblan 3,510 3,908 4,650 3,729 5,693 6,834 6,373 4,377 4,324 4,371 6,868 4,109 4,436 6,754 6,814 7,286Transport and conmunications 965 1 174 1,283 1 304 1,418 1,619 1,801 I 1,415 1,514 1,635 2,226 2,039 2,331 2,310 3,040 2,925Zambian I 688 934 946 1,034 1,211 1T,4 1 1,204 1,292 1,397 1,834 1,830 2,103 2,059 2,796 2,654Non-Zamblan 3,078 4,462 3,766 3,870 4,018 4,689 5,902 | 4,143 4,377 4,653 7,377 5,301 6,359 6,924 8,611 9,815Services 2 876 889 1 054 1,128 1.195 1 131 1,151 1 414 1 560 1,523 1,530 1,711 1,743 1,993 2,312 2,614Za btgn 45_7 33 i6# 748 792 792 841 t 1,125 tl1 1,224 1,246 1,451 1,501 1,735 2,053 2,326Non-Zamblan 2,760 2,926 3,176 3,500 4,191 3,902 4,053 4,314 4,762 4,947 4,894 4,185 5,283 5,929 6,360 8,102Total V 846 878 1,073 1,117 1,179 1,194 1,242 I1 342 1,476 1 491 1,504 1 884 1 959 2077 2439 2 6J8Zambian 468 512 716 764 808 857 918 T' 1 01 1,135 1,122 1,140 1iT78 1 1,740 2,103 2,301Non-Zambian 3,471 4,113 4,468 4,645 5,186 5,081 5,376 4,548 4,949 5,389 5,572 6,858 7,086 6,887 7,669 8,715

1/ 1965-66: average of 4 quartera.1967-80: 4th-quarter figures.

2/ Excludes domestic servants; lacludes electricity, water and sanitary services, financial and buainess services, restaurants and hotels, and other aervices.Note: Beginning in 1972, the basis of claasificetion changed from ethnic group, I.e., 'African and 'non-African to citizenahip, i.e., Zamblan and 'non-Zabian'. This should be kept Inmind when lookaing at the disaggregation by group within each aector. (The 1969 Population Census Indicates that 96.3 percent of Africans hold Zambian citizenahip, while 20.2 percent ofnon-Africans have Zabian citiseaship; of the total population, 95.4 percent are Zambian while 98.8 percent are African,)

Sources: 1965-68: Report on Employment and Earnings, 1966-68, Table 2.1969-71: Report on Employment and Earnings, 1969-71, Table 2.0, 2.1, 2.2.1972-76: Nonthly Digest of Statistics, October 1978 end April/June 1979.1977-78: Monthly Digest of Statistics, July/December 1981 Supplement, Table 5.1979-801 Report on Employment and Earnings, 1979 and 1980, Table 2.0.

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APPENDIX TABLE 2A: AVERAcE ANNUAL REAL EARNINGS OF ENPLOYEES BY SECTOR V,1965-80

(Pwacha In 1975 prices)

1965 1966 1967 1968 1969 1970 1971 T 1972 1973 1974 1975 1976 1977 1978 1979 1980

Agriculture, forestry & fishingZasbian 327 328 438 528 522 492 471 i 550 499 490 453 508 449 437 506 518Non-Zmbian 4,410 5,400 5,196 6,054 6,176 6,350 5,703 1 4,000 3,069 2,822 2,524 3,006 2,608 1,748 3,206 2,902

Nfining A quarrying IZambian 1,570 1,613 2,174 1,852 2,046 2,179 2,089 2,029 2,006 1,873 1,478 2,113 1,850 1,522 1,820 1,668Non-Zmblan 10,034 11,719 12,851 11,826 12,182 10,254 9,847 1 6,371 6,390 7,190 6,784 8,875 7,871 5,203 5,214 5,278

Manufacturing

Zambian 924 826 1,099 955 1,078 1,133 1,260 I 1,299 1,267 1,180 1,179 1,428 1,074 1,134 1,084 1,063Non-Zambian 5,836 6,316 7,554 6,401 7,681 7,590 9,121 * 6,668 7,233 6,362 5,657 7,450 5,704 6,338 7,130 5,243Construction

Zambian 612 573 822 963 812 860 883 ' 891 862 789 764 763 621 724 714 805Non-Zasbian 6,549 6,941 7,855 8,910 8,484 9,694 8,554 1 5,562 5,111 4,741 6,868 3,539 3,262 4,426 4,013 3,847Tranaport & co-unicatlona

Zambian 924 1,188 1,536 1,404 1,499 1,710 1,991 1,526 1,538 1,539 1,834 1,540 1,478 1,243 1,540 1,308Non-Zambian 5,743 7,925 6,361 6,019 5,988 6,651 7,922 5,264 5,174 5,047 7,377 4,566 4,676 4,537 5,071 5,182Services

Zambian 869 886 1,140 1,110 1,148 1,119 1,120 1,426 1,346 1,348 1,246 1,221 1,055 1,048 1,131 1,146Non-Zasbian 5,149 5,197 5,365 5,443 6,246 5,535 5,440 5,482 5,629 5,366 4,894 3,605 3,885 3,885 3,746 4,278Total 2/ 1,608 1,516 1,765 1,657 1,709 1,686 1,654 1,701 1,757 1,642 1,504 1,586 1,377 1,254 1,343 1,300Zambian 890 884 1,178 1,134 1,171 1 210 1,222 1,285 1,351 1,236 1,140 1,244 1,100 1,051 1,158 1,134ino-Zambian 6,476 7,306 7,547 7,224 7,729 7,207 7,216 5,779 5,850 5,845 5,572 5,907 5,210 4,513 4,516 4,601

I/ 1965-66: average of 4 quarters; 1967-80: 4th-quarter figures; earnings data for Zambian& deflated by low-income urban CPI, and for non-Zaeblana by high-incoe urban CPI.2/ Excludes doestic servants; includes electricity, water and sanitary services, financial ard business services, restaurants and hotels, snd other services.Note: Beginning In 1972, the basis of classification changed from ethnic group, I.e., "African' and 'non-African' to citizenship, i.e., 'Zambian' and 'non-Zasbian'. Thti hbould i. k,pt tnmind when looking at the dioaggregation by group within each sector. (The 1969 Population Census Indicates that 96.3 percent of Africans hold Zablan citizenship, while 20.2 percent ofnon-Africans have Zasbian citizenship; of the total population, 95.4 percent are Zambian while 98.8 percent ere African.)Sources: 1965-68: Report on Employment and Earnings, 1966-68, Table 2.

1969-71: Report on Employment and Earnings, 1969-71, Table 2.0, 2.1, 2.2.1972-76, Monthly Digest of Statistics, October 1978 and April/June 1979.1977-78: Monthly Digest of Statistics, July/December 1981 Supplement, Table 5.1979-80: Report on Employment end Earnings, 1979 and 1980, Table 2.0.

APPENDIX TABLE 3: ZAMBIAN EMPLOYEES IN PUBLIC, PARASTATAL AND PRIVATE SECTORS1966, 1970, 1975-80

1966 1970 1975 1976 1977 1978 1979 1980

Agriculture, forestry 6 fishingPublic 10,030 14,260 10,120 9,810 9,890 9,990 11,230 11,070Parastatal

10,650 9,520 9,320 9,630 10,570 10,950Private 23,350 19,830 14,020 11,900 10,280 11,000 9,050 9,560

Mining & quarryingPublic

0 0 0 0 0 0 0 0Parastatal 53,260 55,030 56,340 53,550 55,380 56,840Private 46,490 52,130 1,180 330 130 150 240 270

Manufacturing

Public 2,040 1,770 500 500 490 500 690 700Parastatal 15,150 18,390 19,980 19,790 19,760 2n,880Private 26,170 33,460 25,580 21,490 22,830 23,380 22,510 24,280

Construction

Public 21,810 29,700 26,150 22,340 23,100 24,000 21,910 25,290Parastatal 730 890 1,050 710 610 -Private 38,500 36,510 40,910 23,920 22,620 17,950 17,840 16,780

Transport and CommunicationsPublic 12,170 12,610 1,230 1,220 1,210 960 1,280 990Parastatal

15,350 15,690 16,670 18,490 19,860 19,830Private 5,500 7,110 3,910 2,390 1,770 1,900 2,390 2,220

Services 2/Public 45,010 68,820 86,760 90,170 91,570 94,090 94,580 97,700Parastatal

20,950 25,380 24,990 25,540 30,040 27,920Private 28,500 39,370 34,720 32,010 31,800 31,550 33,390 34,160

Total 2/Public 91,060 127,170 124,760 124,040 126,260 129,540 129,690 135,750Parastatal

116,090 124,900 128,350 127,710 136,220 136,420Private 168,510 188,400 120,320 92,040 89,430 85,930 85,420 87,270

1/ 1966: average of 4 quarters.1970 onwards: 4th-quarter figures.

2/ Excludes domestic servants; includes electricity, water and sanitary services, financial and businessservices, restaurants and hotels, and other services.

Note: Beginning in 1972, the basis of classification changed from ethnic group, i.e., 'African' and "non-African", to citizenship, i.e., 'Zambian' and 'non-Zambian". This should be kept in mind whenlooking at the disaggregation by group within each sector. (The 1969 Population Census indicatesthat 96.3 percent of Africans hold Zambian citizenship, while 20.2 percent of non-Africans haveZambian citizenship; of the total population, 95.4 percent are Zambian while 98.8 percent areAfrican.) Before 1975, some parastatals were classified as private, some public. Therefore, datafrom 1975 onwards cannot be compared to the earlier years.

Sources: 1966: Report on Employment and Earnings, 1966-68, Tables 4 and 5.1970: Report on Employment and Earnings, 1969-71, Tables 3.1 and 3.2.1975-77: Monthly Digest of Statistics, January/March 1980 Supplement, Tables 2, 3 and 4.1978: Monthly Digest of Statistics, January/March 1982 Supplement, Tables 2, 3 and 4.1979: Report on Employment and Earnings, 1979, Table 3.0.1980: Report on Employment and Earnings, 1980, Table 3.0.

0~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

APPENDIX TABLE 4: AVERAGE ANNUAL EARNINGS OF ZAMBIAN EMPLOYEES IN THE PUBLIC, PARASTATAL AND PRIVATE SECTORS-Y1966, 1970, 1975-80(Kwacha)

1966 1970 1975 1976 1977 1978 1979 1980

Agriculture, forestry & fishingPublic

268 408 609 812 850 847 1,131 1,378Parastatal 425 620 585 881 976 1,055

Private 156 285 362 419 485 473 590 668

Mining & quarryingPublic

0 0 0 0 0 0 0 0Parastatal

1,482 2,521 2,636 2,526 3,316 3,395Private 934 1,480 1,300 758 912 858 1,012 1,371

Manufacturing

Public 544 930 1,077 1,620 1,836 1,788 1,588 1,675Parastatal

1,360 1,639 1,778 2,020 1,983 2,341Private 472 749 1,074 1,183 1,294 1,759 1,968 2,008

Construction

Public 270 479 907 884 854 888 1,373 1,662Parastatal

983 1,319 642 2,709 3,196 -Private

364 724 669 911 933 1,554 1,136 1,592

Transport and CommunicationsPublic

710 1,420 1,014 1,160 1,210 1,074 1,398 1,403Parastatal

1,949 1,949 2,236 2,065 2,962 2,728Private

638 966 1,642 1,389 1,459 2,500 2,162 2,554

Services 2/Public

556 789 1,285 1,395 1,402 1,615 1,941 2,119Parastatal 1,226 1,481 1,637 1,767 1,859 2,539

Private 444 735 1,159 1,584 1,680 2,070 2,543 2,746

Total 2/Public

476 688 1,147 1,255 1,258 1,418 1,764 1,966Parastatal

1,381 1,937 2,090 2,106 2,568 2,774Private

532 996 899 1,157 1,249 1,681 1,875 2,082

1/ 1966: average of 4 quarters.1970 onwards: 4th-quarter figures.

2/ Excludes domestic servants; includes electricity, water and sanitary services, financial and businessservices, restaurants and hotels, and other services.

Note: Beginning in 1972, the basis of classification changed from ethnic group, i.e., 'African' and 'non-African", to citizenship, i.e., 'Zambian' and 'non-Zambian". This should be kept in mind when lookingat the disaggregation by group within each sector. (The 1969 Population Census indicates that 96.3percent of Africans hold Zambian citizenship, while 20.2 percent of non-Africans have Zambiancitizenship; of the total population, 95.4 percent are Zambian while 98.8 percent are African.) Before1975, some parastatals were classified as private, some public. Therefore, data from 1975 onwardscannot be compared to the earlier years.

Sources: 1966: Report on Employment and Earnings, 1966-68, Tables 4 and 5.1970: Report on Employment and Earnings, 1969-71, Tables 3.1 and 3.2.1975-77: Monthly Digest of Statistics, January/March 1980 Supplement, Tables 6, 7 and 8.1978: Monthly Digest of Statistics, January/March 1982 Supplement, Tables 6, 7 and 8.1979: Report on Employment and Earnings, 1979, Table 3.1.1980: Report on Employment and Earnings, 1980, Table 3.1.

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APPENDIX TABLE 4A: AVERAGE REAL ANNUAL EARNINGS OF ZAMBIAN EMPLOYEES IN PUBLIC, PARASTATAL AND PRIVATE SECTORS It1966, 1970, 1975-80(Kwacha in 1975 prices)

1966 1970 1975 1976 1977 197R 1979 1980

Agriculture, forestry & fishingPublic 463 576 609 684 597 511 623 679Parastatal

425 522 411 532 537 520Private 269 403 362 353 341 286 325 329

Mining & quarryingPublic 0 0 0 0 0 0 0 0Parastatal

1,482 2,122 1,852 1,525 1,826 1,673Private 1,613 2,090 1,300 638 641 518 557 676

ManufacturingPublic 940 1,314 1,077 1,364 1,290 1,080 874 826Parastatal 1,360 1,380 1,249 1,220 1,092 1,154Private 815 1,058 1,074 996 909 1,062 1,084 990

ConstructionPublic 466 677 907 744 600 536 756 819Parastatal

983 1,110 451 1,636 1,760 -Private 629 1,023 669 767 656 938 626 785

Transport and CommunicationsPublic 1,226 2,006 1,014 976 850 649 770 691Parastatal 1,949 1,641 1,571 1,247 1,631 1,345Private 1,102 1,364 1,642 1,169 1,025 1,510 1,191 1,259

Services2/Public 960 1,114 1,285 1,174 985 975 1,069 1,044Parastatal

1,226 1,247 1,150 1,067 1,024 1,251Private 767 1,038 1,159 1,333 1,181 1,250 1,400 1,353

Total 2tPublic 522 972 1,147 1,056 884 856 971 969Parastatal 1,381 1,630 1,469 1,272 1,414 1,367Private 919 1,407 899 974 878 1,015 1,032 1,026

I/ 1966: average of 4 quarters.1970 onwards: 4th-quarter figures.Average earnings are deflated by low-income urban consumer price index.

2/ Excludes domestic servants; includes electricity, water and sanitary services, financial and businessservices, restiurants and hotels, and other services.

Note: Beginning in 1972, the basis of classification changed from ethnic group, i.e., 'African' and 'non-African", to citizenship, i.e., 'Zambian' and 'non-Zambian". This should be kept in mind when lookingat the disaggregation by group within each sector. (The 1969 Population Census indicates that 96.3percent of Africans hold Zambian citizenship, while 20.2 percent of non-Africans have Zambiancitizenship; of the total population, 95.4 percent are Zambian while 98.8 percent are African.) Before1975, some parastatala were classified as private, some public. Therefore, data from 1975 onwardscannot be compared to the earlier years.

Sources: 1966: Report on Employment and Earnings, 1966-68, Tables 4 and 5.1970: Report on Employment and Earnings, 1969-71, Tables 3.1 and 3.2.1975-77: Monthly Digest of Statistics, January/March 1980 Supplement, Tables 6, 7 and 8.1978: Monthly Digest of Statistics, January/March 1982 Supplement, Tables 6, 7 and 8.1979: Report on Employment and Earnings, 1979, Table 3.1.1980: Report on Employment and Earnings, 1980, Table 3.1.

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APPENDIX TABLE 5: URBAN CONSUMER PRICE INDICES, LOW- AND HIGH-INCOME GROUPS1975=100

Low-Income High-Income

Food, Beverages Food, BeveragesYear All Items and Tobacco All Items and Tobacco

1965 52.6 51.8 53.6 49.81966 57.9 58.5 56.3 52.81967 60.8 61.5 59.2 55.31968 67.4 66.7 64.3 61.11969 69.0 67.8 67.1 62.21970 70.8 69.2 70.5 64.11971 75.1 73.7 74.5 68.31972 78.9 77.2 78.7 74.61973 84.0 82.6 84.6 80.11974 90.8 89.8 92.2 89.81975 100.0 100.0 100.0 100.01976 118.8 122.3 116.1 122.91977 142.3 144.8 136.0 141.91978 165.6 169.4 152.6 162.21979 181.6 184.5 169.8 172.81980 202.9 211.1 189.4 195.71981 231.3 242.7 209.1 228.61982 260.2 276.6 236.6 274.01983 308.6 329.5 279.8 325.8

Note: In 1975, low-income includes households with gross monthly incomesless than K100, and high-income includes households with grossmonthly incomes of K300 or more.

Source: Monthly Digest of Statistics, January/February 1976, Tables 48, 49and 50; and July/September 1982, Tables 46 and 47, and data suppliedby the CSO.

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Appendix Table 6: COMPARISONS OF CONTROLLED AND MARKET PRICES, ZAMBIA, 1979/1980

Market PriceControlled Price Market Price as X ofCommodity Unit Place and Date (Kwacha) (Kwacha) Controlled Price

Washing Powder large packet 1/79-7/80 1.56 3.50 224Bath soap tablet 1/79-7/80 0.24 0.75 312Paraffin 1 liter 1/79-7/80 0.20 0.45 225Laundry soap tablet 1/79-7/80 0.33 0.65 197Charcoal 40 kg. sack Luapula, 1980 2.50 3.50 140Fish kilogram Luapula, 1980 1.30 2.60 200Milk packet Lusaka, 1980 0.09 0.15 167Washing powder packet Lusaka, 1980 1.00 1.50-2.00 150-200Toilet soap tablet Lusaka, 1980 0.35 0.60 171

Sold in Smaller Units

Cooking oil Lusaka, 1980 .20 per cup 1/ 250-300Mealie meal bag Lusaka, 1980 6.50 15.00-20.00 2/ 231-308Charcoal 40 kg. bag Urban centers, 1980? 2.50 6.00-8.00 37 240-320Cooking oil 2.5 liters 1/79-7/80 3.54 53.40 4/ 1508

1/ Sold in small cups at KO.20 each.2/ Sold in small packets at KO.50 each.3/ Sold in small piles at KO.20 a pile.4/ Sold in a bottle holding 1/12 of a liter for K1.78.

Source: ILO/JASPA, pp. 23; Technical Paper No. 9, pp. 129, 135;Technical Paper No. 11, pp. 157, 158; Technical Paper No. 12, p. 168.