Inflexible workers’ demands ‘cause job losses’

2010-12-03 14:30

Inflexible wage demands by SA’s workers are the likely reason for massive job losses since the start of the global financial crisis, the International Monetary Fund’s (IMF) mission chief for Africa told MPs.

Abebe Selassie said during a briefing to the standing committee on finance that job losses in other developing countries were not nearly on the same scale as South Africa’s.

“What is striking is that declining employment in South Africa has been of the same scale as seen in the United States, which was at the epicentre of the global financial crisis,” Selassie said.

“The scale of job shedding in South Africa has been very large.

We are trying to understand why that has been the case. In other countries you don’t see the job losses you saw here. The rebound has been much stronger in other countries.”

Selassie said one possible explanation was a “very large loss” in output in the economy, which had caused a drop in demand for goods and services.

But it was the inflexibility of the labour market on wages that was the possible cause for the massive number of jobs being lost.

“One of the characteristics of the economy here is that you have flexibility in the labour market in the volume dimension, but perhaps not in the wage dimension.

A lot of companies are faced with a crunch when demand for their output declines and they have to reduce costs.

“One of the ways you reduce costs is by laying off, or by reducing working hours or lowering wages.

“What we noticed in other emerging market countries particularly in Asia, is that when the crisis hit, we saw lot of working hours cut. Job shedding wasn’t as large.”

Selassie said the only way to reduce poverty in South Africa was through job creation.

“The primary driver of inequality is the lack of jobs.

This is why more attention needs to be given on how South Africa creates more jobs. How you go about addressing this is really a challenge for you.

“The fundamental thing to get inequality down is to address poverty and poverty can only be addressed by creating jobs.”

Selassie said the IMF was not recommending that legislation be changed to make it easier for people to be fired.
“That is not our argument at all.

We believe your employment protection legislation here provides workers with very important fundamental rights. It’s more that you need to look at the wage bargaining system.

“When you see the economy being hit by a large shock, you see a lot of jobs being shed, but at the same time you see a lot of wage agreements that are very high.

“It sits incongruously with all the job losses going on.”

Along with dealing with “wage inflexibility“, the government could reduce barriers to entry for businesses.

“In a lot of other developing countries, like Brazil and Thailand, the informal sector is a source of employment and growth.

“Here that is lacking. Maybe this has to do with regulation.

This is one of the areas to be thought about ... how to lesson the barriers to entry to allow more companies to come in to create jobs.”

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