Iniquity of Labour Laws Today and the Land Act in 1913

31 July 2012
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It is a different time and we have a different government but history in this country is being repeated. Labour law in South Africa today is wreaking the same havoc on the millions of unemployed as the 1913 Land Act did on black sharecroppers. Like those victims of the past, the unemployed in South Africa today are being locked out of gainful economic activity and into a life of poverty.

Sol T Plaatje documented in Native Life in South Africa how black farmers trekked along the country’s roads with their livestock, searching in vain for land to hire or partners who were prepared to replace the ones who had buckled under the new law proclaiming that in future black farmers had to work for wages and were no longer allowed to trade their labour for a share in the crops. In their desperate plight, the sharecroppers remained unaware that the Land Act made it an offence, punishable by a substantial fine or six months imprisonment, for any white landowner to lease land to a black person, or to farm in partnership with a black farmer.

Like those early landowners, current-day employers dare not disobey the laws in view of the sizable penalties for transgressions. The Land Act that set the 1913 black farmers trudging futilely from farm to farm looking for a place to settle and resume farming, deprived those potential black tenants and sharecroppers and every white farmer throughout the country of their contractual rights in respect of land. Today, it is the jobless who trudge futilely from firm to firm looking for employment, also unaware that it is the labour laws that deprive them of their right to contract. And also unaware that these same laws deprive all potential employers of this same right.

There is not a single employer in the whole country with whom job seekers are entitled to enter into a contract if the terms are in conflict with a labour law or regulation. Employers face fines and other penalties for contravening the laws, even if they do so out of ignorance. This pushes up the cost of taking on new employees so that low-skilled job seekers are priced out of the market. The jobless do not understand the subtlety of blanket laws and how these laws make employers reluctant or unable to contract with them by agreement. The wishes of the unemployed receive no recognition in our labour laws and their right to decide for themselves what terms of employment they find acceptable has been taken away.

The belief of those behind the drafting of such laws is that employees should be protected against making possibly adverse decisions about their own working lives. In their efforts to protect these employees, the laws that have been formulated statutorily remove the employees’ freedom of contract.

That the labour laws and regulations are supposedly enacted for the benefit of working people is cold comfort to the unfortunates who are unemployed and will remain unemployed because of them. Laws and regulations that can protect them only once they are employed are a heartbreaking hindrance and of no help to more than a third of our potential workforce. If government would only return their freedom of contract to them, the unemployed would find jobs and work their way out of poverty. Potential employers would not hesitate to take on additional staff and the job market would grow along with the country’s economy in general.

The onerous termination requirements, minimum conditions of employment, compulsory minimum wages and other regulatory conditions imposed on employers, all serve to consign thousands of people to the ranks of the permanently unemployed. This is because the sum total of their wages plus what it costs the employer to comply with the labour regulations exceed the economic value of their expected production. Compliance costs include the time required by employers to understand the legislation and implement administrative processes that will reduce the likelihood of contravening the laws, as well as the executive time, professional fees and other costs related to potential accidental contraventions.

The manager-owners of small firms and individuals cannot deal with the complexities of the regulations and are afraid that they may unintentionally break the law. Some believe that the law and the courts are biased in favour of employees. Their response is to forego expanding their businesses, even closing them down, anything to avoid hiring additional staff members. More jobs and potential jobs are lost and the number of the unemployed grows accordingly.

Costs of complying with labour laws are similar for high-wage and low-wage employees, so the compliance costs for hiring low-wage workers make up a larger percentage of the total cost of employing them. Compliance costs are therefore a greater deterrent to the hiring of unskilled workers, and create a bias in favour of hiring skilled and experienced workers.

Mass unemployment is an unavoidable consequence of the conditions that have been created in South Africa by a combination of lack of skills, poor education, unavailability of on-the-job training, and the aversion of employers to hiring unskilled, inexperienced, poorly educated, young, first-time, old, long-time unemployed, and otherwise disadvantaged individuals. The aversion to hiring such individuals is a direct result of the current requirements such as the onerous termination procedures and minimum wage laws.

When employers face costly (time and money) procedures for the termination of contracts of employment (unjustifiable or wrongful dismissal procedures), such as requirements for written notices to employees, internal disciplinary hearings, and potential hearings before the Commission for Conciliation, Mediation and Arbitration (CCMA) and possibly the Labour Court, they understandably become more careful about hiring. Some employers will even cease hiring altogether if they believe that the level of statutory intervention in the process of entering into and terminating contracts of employment has become unbearable.

Most of the cases coming before the CCMA are for alleged unfair dismissal disputes (79 per cent) and unfair labour practices (8 per cent) according to statistics provided by the CCMA, April 2011. Typically, the great majority involve small businesses. This is not surprising as the procedural requirements demand careful study of the legislation and meticulous attention to detail – skills that are not generally found in small firms.

Being kept unemployed by laws aimed to protect them from dismissal if they were ever employed is what some economists call a ‘negative benefit’ for the jobless. If unemployed people realised that the unfair dismissal provisions constitute such a major barrier to their employment, it is likely that the vast majority of them would readily forego this doubtful privilege in exchange for the right to contract freely with potential employers.

AUTHOR Eustace Davie is a director of the Free Market Foundation. This article, which is an excerpt from the new book Jobs Jobs Jobs launched today by the Foundation, may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation.

Note: Jobs Jobs Jobs is available from the Foundation at a price of R180.00. To buy copies of Jobs Jobs Jobs / Nationalisation click the link http://www.fmfevents.co.za/Event.aspx?ID=16

FMF Feature Article/ 8 November 2011

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