South African Salaries: A Delicate Balance Between Gains and Growing Productivity Concerns
Despite a slight monthly dip, South African net salaries are still tracking ahead of last year, offering a glimmer of hope for consumer spending as the festive season approaches. But a deeper look at the latest PayInc Net Salary Index reveals a more nuanced picture – one where rising wages are increasingly outstripping productivity gains, potentially creating headwinds for sustained economic growth.
Real Wage Growth: A Fragile Victory
The PayInc index, representing the net salaries of approximately 2.1 million South African earners, remained at R21,414 in October 2025, showing a year-on-year increase of 1.8%. However, when adjusted for inflation, real net salaries actually decreased by 0.2% month-on-month, marking the fourth consecutive month of decline. This reflects the creeping impact of rising consumer inflation, which has moved from 2.7% in March to 3.6% in October.
Despite these monthly declines, the average real net salary for the first ten months of 2025 is still 1.0% higher than in the same period of 2024, thanks to a slower overall inflation rate. Economist Elize Kruger forecasts an average consumer inflation of 3.2% for 2025, significantly lower than the 4.4% experienced in 2024. This, coupled with average salary increases of around 5%, suggests 2025 could be the second consecutive year of real earnings growth – a positive sign for household finances.
Spending Power and Economic Activity
This boost to disposable income is already translating into increased consumer spending. Real final consumption expenditure by households in the first half of 2025 was 2.9% higher than in the corresponding period of 2024, outpacing the overall GDP growth of 0.8%. This suggests that salary earners are driving a significant portion of economic activity, particularly as we head into the Black Friday and festive shopping season.
The Job Market: Slow and Steady, But Not Enough
The positive trend extends to the job market, albeit cautiously. PayInc data indicates that additional salaries were paid in 2025, signaling increased employment opportunities. Stats SA’s Labour Force Survey confirms this, reporting 248,000 jobs created in Q3. However, year-on-year job growth has slowed to 109,000, aligning with PayInc’s data showing a cumulative increase of 125,000 additional salaries in the ten months to October.
Kruger emphasizes a critical point: “While encouraging, the current economic growth rate of around 1%-1.3% per annum isn’t sufficient to absorb all new entrants into the job market.” This highlights a persistent challenge – creating enough quality employment opportunities to meet the demands of a growing workforce.
The Productivity Puzzle: A Looming Threat
The most concerning aspect of the current economic landscape is the widening gap between salary growth and productivity growth. Labour productivity growth in the formal non-agricultural sector has decelerated, falling from 1.2% in Q4 2024 to 1.1% in Q1 2025. Simultaneously, nominal unit labour costs have moderated, but remain a concern.
“The fact that productivity growth still lags salary growth points to cost pressures at a company level,” Kruger warns. “This will become more pronounced in an environment of low inflation, where companies will have less pricing power.” Essentially, businesses are paying more in wages without a corresponding increase in output, squeezing profit margins and potentially hindering future investment and expansion. The South African Reserve Bank (SARB) data reinforces this, showing that total remuneration growth decelerated faster than non-agricultural output growth.
Looking Ahead: Prioritizing Productivity
The current situation demands a renewed focus on boosting productivity. Investing in skills development, technological innovation, and streamlined business processes are crucial to unlocking sustainable economic growth. Without significant improvements in productivity, the gains in salary increases could be eroded by inflation and reduced business investment. This isn’t just an economic issue; it’s a matter of ensuring long-term job security and improving the overall standard of living for South Africans. Further research from the World Bank highlights the critical link between productivity and inclusive growth: https://www.worldbank.org/en/topic/productivity.
What steps can South African businesses take now to address the productivity challenge and ensure continued economic progress? Share your thoughts in the comments below!
