How to fix SA's labour market

Mills Soko
Mills Soko
picture supplied

South Africa’s unemployment problem is well known. A major contributor to high unemployment in SA is the current state of labour market institutions and the regulatory environment.

In this context, several factors are to blame: a rigid labour market, the ongoing crisis in collective bargaining, the prevalence of the controversial practice of labour broking, problems with the determination and implementation of minimum wages, and policies that hamper – rather than aid – efforts to achieve higher rates of job creation.

A key problem that undermines the efficiency of the South African labour market is the economy’s low capacity to absorb labour – the current employment-to-population ratio is just 41.9%.

This modest labour absorption rate is a product of the mismatch between the skills of the workforce and those required by industry. Inadequate vocational skills training and a poor-quality education system have only worsened the skills deficit. 

A number of other factors are hampering job creation efforts in SA. Certain aspects of labour legislation are highly restrictive by global standards. Rigidities associated with arbitration processes and in policies and legislation governing the hiring and firing of workers serve as obstacles to hiring new workers.

The growing incidence of abuse of the Commission for Conciliation, Mediation and Arbitration (CCMA) processes relating to dismissal has slowed down the arbitration and dispute resolution system, further discouraging businesses from hiring new workers in South Africa.

Other impediments that discourage businesses from taking on new employees include the lack of a clear probation period for new employees and limited rights of recourse to dismiss employees who do not meet expectations during the probationary period. There is also the problem of unduly onerous dismissal protection, particularly for executives and high-earning employees.

These factors have encouraged many employers in SA to opt for alternative, atypical forms of employment, such as employing workers through labour brokers.

Although labour broking is an effective mechanism to assist workers to gain entry into the labour market, it also makes those employed in this way vulnerable to arbitrary or summary action, and undermines their ability to contest unfair labour practices or unfair dismissal.

Another labour market challenge is the crisis in collective bargaining. The dominance of centralised bargaining favours large employers, institutionalises the power of trade unions and results in greater incidence of fixed wages across sectors.

Centralised bargaining does not adequately recognise differences across enterprises and stifles labour management relationships at the enterprise level. 

Who is to blame for these problems? Major trade unions must accept responsibility for their failure to achieve real gains for workers through effective collective bargaining over the past decade.

For their part, business organisations and employers have, until recently at least, also been content to leave bargaining to industry representatives, while paying little attention to workplace relations.

Moreover, there has been poor leadership from government. The government’s decision-making and labour market policies remain heavily influenced by the views of trade unions – particularly Cosatu – and those of big business; to the detriment of medium-sized and small businesses. 

Amid this chaos, there is a clear need for change. Firstly, there is an urgent need to tackle the abuse of temporary workers, including through labour-broking arrangements.

Secondly, there is a need to remove the obstacles to taking on employees that are currently encountered by businesses. The removal of these obstacles will require reining in the highly inflexible and expensive system for protection against unfair dismissal.

The current system is a significant barrier to job creation, and carries enormous cost for businesses and government. 

Thirdly, the collective bargaining system needs a radical overhaul. What is required is a move away from the preoccupation with industry level bargaining in favour of re-introducing two-tier bargaining at both the industry and plant level. 

Lastly, skills shortages within the labour force should be addressed. This will require a rethink of the country’s existing vocational training system.

As a first step in this process, the largely ineffective sector education and training authorities should be replaced by industry colleges focused on training artisans and those in similar vocations, while greater emphasis needs to be placed on improving the link between existing vocational training programmes and actual opportunities in the workplace.

The South African labour market is in crisis. However, casting blame for the crisis – as both trade unions and business are wont to do – does little to identify a way out of it.

The labour market requires leadership, and it needs real change. Dealing effectively with SA’s massive unemployment problem and the harmful effects of frequent strikes on productivity and economic growth will require major structural reforms to the labour market and its institutions.

Unless these are undertaken, it is unlikely that the economy will be able to generate the number of new jobs required to address the unemployment problem and tackle poverty and inequality in the country.

*Mills Soko is an associate professor of international political economy at UCT’s Graduate School of Business.

This article originally appeared in the 3 March 2016 edition of finweek. Buy and download the magazine here.

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