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NK A WP/BOG-MAFSD-08/02/001
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S T. 1 9 5 7 Working Paper

An Overview of Employment and Labour Cost in

the Ghanaian Banking Industry

Settor Amediku, FCCA,CA(GH)

(Monetary Policy Analysis and Financial Stability Dept.)

The Working Paper series are intended to provide analytical information

to support the work of the Monetary Policy Committee.
©2008 Bank of Ghana WP/MPAD/BOG-08/02-7

Working Paper

An Overview of Employment and Labour Cost in the Ghanaian Banking

Industry

Prepared by Settor Amediku

August 2008

BOG Classification: BG1, BG03

Author’s Email Addresses: settor.amediku@bog.gov.gh

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Background to the study

Given the central importance of understanding inflationary pressures, the Bank of

Ghana has a strong interest in developing and maintaining a thorough
understanding of labour market developments and in particular, of the nature
and diversity of wage patterns. Since labour costs are a large fraction of a firm’s
total production costs, rising wages and related social security contributions can
put pressure on firms to pass these higher costs on in the form of higher prices,
possibly leading to cost-push inflation. This flow is illustrated below.

Figure 1.1 Inflation flows in an economy

As part of an overall labour cost analysis, insight into inter-industry wage

differentials may thus provide important additional information. Together with
data availability and qualitative factors, the focus on wages from the labour cost
and supply-side standpoint warrant the use of compensation per employee data

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(i.e. gross wages plus indirect labour costs), which will systematically be referred
to as “wages” for the remainder of the paper. Yet this focus should not lead us
to overlook the fact that, along with employment, wages are the main
component of the household earnings and a crucial determinant of private
consumption, effective demand and short-term developments in output.

Studying the magnitude and development of wage differentials across industries

(i.e. the level of average compensation per employee relative to that of the total
economy) explains the overall structure of wages in general and provides a
context in which competing approaches to wage determination may be
compared. Indeed, in homogenous and perfectly competitive labour and product
markets, an individual’s salary should be independent of the industry in which
the person is employed. Furthermore, temporarily higher wages in one industry
should attract a sufficient supply of labour to eventually bring wages in that
particular industry back to the average for the economy as a whole. Owing to
data limitation for other sectors of the economy this paper explores
development in wages and employment in the banking sector over the period
2001 -2007 and future research will focus on inter- industry analysis.

The paper aims at deepening the understanding of wage formation in the

banking industry by reviewing the available information on the wage structure at
the industry level, assessing its possible determinants and studying its
developments over time. It also takes a first step towards providing a descriptive
overview of the magnitude of wage structure in the banking sector as a whole
(i.e. the average level of compensation per employee in the industry).

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Employment Trend

Number of bank employees showed an increase of 62.68% (or 4,157) from

6,632 at end 2001 to 10,789 as at end 2007. While year 2002 exhibited the
lowest growth (3.66%) in the number of persons employed by the industry, 2006
showed the highest growth (13.56%) in employment. Of the 10,789 employed
by the sector in 2007, there were 4,443 (41.18%) managers, 5,235 (48.52%)
clerks and 1,111 (10.30%) non-clerks. The managerial grade recorded the
highest growth (150.03%) in number of employees compared with clerical and
non clerical which recorded 33.82 percent and 17.82 percent growth
respectively. The size and distribution of the bank employees are shown below

Chart 1 : Banking Sector Employment Trends

12,000
10,789

10,000 9,537
8,398
8,026
8,000 7,631
6,632 6,875

6,000

4,000

2,000

-
2001 2002 2003 2004 2005 2006 2007

Number of employees

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 Chart 2 : Distribution of Banking Sector Employees, 2001- 2007

6,000

5,000

4,000

3,000

2,000

1,000

2001 2002 2003 2004 2005 2006 2007

Managerial Clerical Non clerical

Wage Bill

The Banking sector wage bill at GH¢45.78 million in 2001 showed an increase of
395.29 percent (or GH¢180.98million) to GH¢226.76million as at December
2007. Total number of employees however went up by 62.68 percent during the
same period. The sector wage bill registered the highest growth of 40.74 percent
in 2003 (end- year inflation at 23.56% was also the highest during the period
2001 - 2007) while the 20.69% growth in 2006 (end year inflation at 10.90%
was the lowest during the period 2001- 2007) was the lowest. In real term the
industry wage bill rose by 34.61 percent in 2007 compared with the lowest of

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19.14 percent recorded in 2005. The growth in the wage bill, annual change in
consumer price index and other key employment statistics are shown below.

Chart 3 : Growth in Banking Sector wages and annual changes in CPI

45

40

35 Wage growth

30

25
(%)

20

15
Annual change in
10 CPI

5
Correlation Coefficient = 0.30
0
2001 2002 2003 2004 2005 2006 2007

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 Table 1: Key Developments in the Banking sector Labour market
2001 2002 2003 2004 2005 2006 2007
Employment 1.55 3.66 11.00 5.18 4.63 13.56 13.13
growth
(% change
on previous
year )
Total Wages 45.78 62.07 87.36 112.80 137.35 165.77 226.76
(GH¢m)
Earnings 6,903.27 9,028.59 11,448.19 14,053.88 16,354.79 17,381.27 21,017.42
per bank
employee
(GH¢)
Earnings 19.69 30.79 26.80 22.76 16.37 6.28 20.92
per bank
employee
growth (%
change on
previous
year)
Real 5,691.54 7,839.36 9,265.29 12,572.80 14,316.17 15,872.92 18,649.00
Earnings
per bank
Employee
(GH¢)
(inflation
adjusted)
Real 38.68 37.74 18.19 35.70 13.87 9.48 18.99
Earnings
per bank
employee
growth (%
change on
previous
year)
Real Assets 180,171.15 235,715.19 261,705.74 348,660.75 382,965.69 490,114.99 641,160.44
per
Employee
(GH¢)
(inflation
adjusted)
Annual 29.18 23.80 27.22 28.00 21.97 22.48 21.52
increase in
salary (%)

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The annual change in Consumer Price Index (CPI) was found to be positively
correlated to the sector wage bill for all the years except in 2002 where annual
change in CPI declined and the banking sector annual wage bill increased.

Annual Average Wage per Bank Employee Trend

Annual average wage per bank employee has increased since 2001, picking in
2002 at 30.79 percent and sharply falling to 6.28 percent in 2006. The 2007
growth of 20.92 percent was a reversal of the decreasing trend in the annual
average wage per bank employee.

The industry’s Real Earnings per Employee (REE) also moved up by 227.66
percent or GH¢12,957.46 from GH¢5,691.54 in 2001 to GH¢18,649 in 2007. REE
has witnessed a sustained increase over the period. Similarly, Real Assets per
Employee (RAE), a measure of productivity, also went up by 255.86 percent or
¢460,989.29 from GH¢180,171.15 in 2001 to GH¢641,160.64 in 2007. The
relationships between the REE and RAE are shown below.

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 Chart 4 : Relationships between Banking Industry Real Earnings and Assets per
Employee

45

40
REE
35
RAE
30

25

20

15

10

0
2001 2002 2003 2004 2005 2006 2007

Change in Real Earnings per Employee Change in Real Assets per Employee

Wage Settlement

The banking industry recorded its highest average annual increase in salary of
29.18 percent in 2001 and the lowest average of 21.52 percent in 2007. The
developments in the industry wage settlement over the period 2001 – 2007 is
illustrated below

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 Char 5: Banking sector wage settlement, 2001 - 2007

35.00

30.00

25.00

20.00

15.00

10.00

5.00

2001 2002 2003 2004 2005 2006 2007

Annual increase in salary

Labour Turnover

The industry labour turnover defined as the ratio of the number of employees
that left the banking industry through attrition, dismissal or resignation during a
year to the number of employees on the payroll during the same period1 is
provided below

1
Marchington, M and Wilkinson A.J (1997) Core Personnel and Development, IPD, London

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Year Number of Number of Total Labour
Employees Employees Net number of Turnover
engaged in that left employment employees (%)
the year the
industry in
the year
(a) (b) (a) – (b) (c) (b)/(c)*100
2001 538 380 158 6,632 5.73
2002 464 487 -23 6,875 7.08
2003 603 398 205 7,631 5.22
2004 765 385 380 8,026 4.80
2005 896 375 521 8,398 4.47
2006 1,545 431 1,114 9,537 4.52
2007 2,512 610 1,902 10,789 5.65

Table 2: Industry Labour turnover

A total of 2,512 employees were engaged in 2007 representing an increase of

366.91 percent (or 1,974) over the 2001 position of 538. Similarly, 610
employees representing 60.53 percent increase over the 2001 position left the
industry. The industry recorded its highest labour turnover of 7.08 percent in
2002 before reaching its lowest level of 4.47 percent in 2005. The industry
labour turnover however, picked up since 2005 to 5.65 percent in 2007.

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Summary and conclusion

The study provides an insight into the developments in wages and employment
in the banking industry. Employment in the sector has witnessed a steady
increase over the period. The size of the managerial grade in recent times
compared with clerical grade may be explained in terms of the changes in
technology and innovations in the industry. One phenomenon that has also been
identified in the study is that, industry wage level has consistently increased
above the annual inflation rates. For instance the periods that recorded high
wage growth were also associated with high inflation rates and low wage rates
were also associated with low rates of inflation.

Real assets per employee, a measure of productivity, has been consistently

below real earnings per employee, a measure of marginal cost of labour until
2005. It is interesting to note that it was in 2005 that regional banks, which
introduced various innovative means to grow assets base, were allowed into the
industry. Annual increase in salary has declined since 2004 in line with decrease
in inflationary pressures but was above the annual inflation rates. The industry
recorded its highest labour turnover of 7.08 percent in 2002 before reaching its
lowest level of 4.47 percent in 2005. This ratio has since picked up and was 5.65
percent in 2007.

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