What is the problem in the labour market? How is it possible that 3.9 to 7.4 million people remain unemployed in a country where there is so much to do? Why have people with valuable knowledge and skills left the country in droves? Why are people who want to come to this country being denied work permits? Why are young South Africans not receiving an education and being trained in skills that are in high demand in the workplace?
It must be clear as daylight to everyone that SA needs more human capital rather than less. Policies must be adopted that will not only attract and retain a greater number of people with unique capabilities and expertise and greater knowledge and skills but also develop more of them in the country. If policies are maintained that continue to drive away skilled and talented people, the economy will suffer and so will the country’s vast pool of unemployed and unskilled individuals who more than anything need enterprising entrepreneurs to create a demand for their labour by growing existing businesses and starting new ones. Young school leavers need access to more people from whom they can acquire knowledge and skills.
Labour laws, such as SA’s, that provide a high level of job security for the employed interfere with the contractual rights of both the unemployed and potential employers. If that were not so, there would be nothing to prevent job seekers from contracting freely with firms on mutually agreeable terms. Given unrestricted freedom of contract, no one should be unemployed other than those who are holding out for higher wages or better conditions.
Cast iron job security for some inescapably leads to unemployment for others. Onerous termination requirements, minimum conditions of employment, compulsory minimum wages and other regulatory conditions imposed on employers, all serve to consign some people to the ranks of the permanently unemployed. This is because the sum total of their wages and the costs to the employer of complying with the labour regulations exceed the economic value of their expected production.
Compliance costs include the time required to understand the legislation and to implement and maintain the administrative processes needed to avoid contravening the laws, and the potential executive time, professional fees and other costs related to an inadvertent contravention. Many small firms are incapable of dealing with the complexities of the regulations and respond by refraining from hiring staff. Compliance costs are similar for high-wage and low-wage employees, which means that they constitute a greater percentage of the total cost of employing low-wage workers. They are therefore a greater deterrent to the employment of unskilled than skilled workers.
Countries such as SA that have many low-skilled job seekers also have large numbers of existing and potential low-skilled employers, who do not have the capacity to administer and comply with the requirements of complex labour laws. Inflexible labour laws then have a doubly retarding effect on the employment of labour: not only do they price unskilled people out of the labour market, they also prevent low-skilled people from becoming employers. Relief for both employees and employers at the lower end of the South African job market could consequently bring about a significant reduction in unemployment and an increase in the number of labour-intensive firms.
Legislated restrictions on termination of employment contracts (generally referred to as “unjustifiable dismissal” provisions), and compulsory minimum wages without doubt represent the greatest statutory barriers to employment. Together, these two measures create a formidable obstacle to employment for SA’s jobless. Employers dare not ignore the laws because the penalties are substantial.
The FMF booklet, Jobs for the Jobless: Special Exemptions Certificates for the Unemployed, suggested that the government should leave the job protection provisions intact to allay the fears of employed workers that liberalisation of the labour laws could cost them their jobs, but exempt the unemployed from the provisions to allow employers, and especially small employers, to employ them without fear of potential fines and penalties. It suggested that government should issue anyone who has been unemployed for six months or more with an Exemption Certificate, valid for a minimum period of two years, that would allow the individual to enter into a written contract with an employer at any wage and on any conditions she or he found acceptable. The purpose of the six month waiting period before qualifying for an Exemption Certificate is to prevent employers from firing their workers and taking them back again once they have Exemption Certificates. We have seen no other proposal that has the potential of the Exemption Certificate to allow large numbers of unemployed individuals to get jobs without threatening the jobs of those who are already employed.
There is an anomaly in the labour market that may well be one of the causes of the current apparent xenophobia. Employers can and do employ foreign nationals who are in the country illegally because the illegal aliens dare not report contraventions of the labour laws, such as firing without cause, to the labour authorities. Illegal aliens can therefore get jobs that, because of the onerous laws, are not available to SA nationals. The frustrated SA job seekers will blame the illegal aliens, not realising that the labour laws are the real source of their frustration at being rejected by employers who appear to favour illegal aliens above them. If unemployed people were allowed to make their own choices, determine their own agreements with employers, and enter freely and voluntarily into contracts based on those agreements, unemployment would rapidly decline.
Lower unemployment would reduce many of the social ills that plague the country, such as crime and violence directed at aliens. It would also restore the dignity and self-worth of people who now see themselves as social rejects. Poverty per se does not cause crime but an impenetrable barrier to gainful and honest employment does. The Exemption Certificate option has the potential to help alleviate two of the country’s most serious problems, unemployment and crime, considerably increase SA’s human capital by adding skills and productive effort, and remove part of the negative weight that crime imposes on the population.
Authors:Temba A Nolutshungu and Eustace Davie are directors of the Free Market Foundation. This article may be republished without prior consent but with acknowledgement to the authors. The views expressed in the article are the authors' and are not necessarily shared by the members of the Foundation.