Unemployment: The dream is still deferred

06 October 2020
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The voice of the unemployed in South Africa is largely absent from public debate. The economic aspect of this debate has largely centered around how best to create jobs for the unemployed, yet the people involved in these discussions are the people who would face increased competition from the new workers. The scale of South Africa's unemployment problem likely means any movement towards mass hiring in the economy is going to push wages down, at least temporarily, for existing workers.

What is equally strange, is that the other influential group is not the people who are meant to create these new jobs, but the people who created existing jobs and are the most likely to suffer from competition from the new job creators. There are good reasons why job growth is most often driven by small business, with for example more than two thirds of the non-agricultural jobs in South-East Asia being created by the informal sector.

In Europe, too, while the informal sector is not as large, mostly formal small businesses created 85% of net new jobs in the European Union between 2002 and 2010. In South Africa, through Nedlac, the most powerful voices in the creation of policy targeted at the unemployed, are the competitors of the unemployed (the unions) and the competitors of the people who are most likely to hire these unemployed people (existing big businesses).

Predictably, unemployment has increased over time. Between 2001 and 2011, the share of poverty attributable to unemployment increased from 33% to 40%. In comparison, the next biggest contributor, years of schooling, decreased from 16% to 14% in terms of its contribution.

The effect of a policy environment once described by the official opposition as comprising "insiders and outsiders", is high unemployment, low to zero incomes, and therefore poverty. It is not a complicated equation, neither is the question of how to resolve this problem: The government should allow small businesses to operate freely, while allowing employees to choose whichever contractual terms suit them.

Of course, this is not intentional mischief. Individuals are pursuing their own self-interest in a market environment distorted by legislation. If South Africa had stuck to the rule of law and respected the rights of everyone, including potential entrepreneurs and potential employees, since 1994, we would almost certainly have had much less poverty in the country.

The quickest way to achieve this goal is through tackling the problem itself head on. There is no more time to waste. When Thabo Mbeki spoke of a "dream deferred" in 1998, surely he could not have imagined that unemployment under the ANC government would grow to all-time highs? His question then has become more relevant than ever in the wake of the devastation wrought by the COVID-19 lockdown.

The Asian Development Bank estimates that developing countries in Asia are expected to experience an economic contraction for the first time in 60 years. This will affect demand for the commodities that South Africa exports. There is now no way to avoid the inevitable answer to the question posed by Mbeki, except to accept that the unemployed should be able to reject or accept the terms of any employment contract.

Some in government recognise this. The economic strategy document released by National Treasury last year proposes reforming the collective bargaining process. This is necessary. In particular, the extension of collective bargaining agreements to entire sectors is unjust. The majority employers and unions in the sector can collude to fix the price of labour - this in a country with some of the most intrusive competition laws in the world.

That part of the Labour Relations Act was the subject of a legal challenge in 2016 by the Free Market Foundation. Unfortunately, the application failed and more restrictions on the rights of the employed to negotiate contracts have been introduced in the form of the National Minimum Wage Act.

The people proposing these measures must be aware of the effect they have on the prospects of the unemployed and therefore the prevalence of poverty. The most direct solution to the problem is to simply drop all the restrictions that increase the cost of employment. These include PAYE tax. Rather than an Employee Tax Incentive, simplify the process and reduce or eliminate PAYE altogether.

We must not shy away from pursuing every available job, including low-paid jobs for the townships in particular. These are the areas that because of their location, demographics and unemployment, stand to benefit the most from rapid job growth.

A generalised reform programme along the lines of the National Treasury proposal is certainly needed, but in terms of labour regulation at least, a more radical programme is required in the townships. A programme that makes it easy for anyone to build up capital in the township, factories, offices, retail stores, etc.

Removing most labour laws in the local context of the townships creates a pull factor for investors. It incentivises the entry of the 70% of young people between the ages of 15-24 who are unemployed, into the labour market and a first step on the income rung.

Of course, taking the lowest step on the income ladder is not easy. There are temptations to do things the "easy" way, through a pyramid scheme perhaps or through government, but the only sustainable solution lies in free markets. Once these young people are able to take this first step, they can then start saving.

Government can help here as well, by ensuring that these earnings maintain their purchasing power. By eliminating the fiscal deficit, money supply growth can also be controlled and workers can have the possibility of earning a decent interest on their savings. Transferring ownership of government land and other assets such as equity in State-owned enterprises (privatisation can mean giving ownership to poor people or even workers), if any still exists, to the poor, would also help build up asset ownership along with saving.

The aversion to the jobs that poor people can get, often because of a government-run public education system that failed them, continues to harm South Africa's poorest. It is almost too scary to imagine where the level of frustration lies, 22 years after Mbeki spoke of a dream deferred. Perhaps it is about time we do something about this issue, before the explosion comes.

This article was first published on City Press on 28 September 2020

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