Investment, employment and South African labour laws: An international comparison


South Africa’s recently passed labour laws are not significantly out of step with the recommendations of the OECD Jobs Study (1994)1,  except in the  area of  enhancing the flexibility of wages. In this regard, the Labour Relations Act’s promotion of sectoral collective bargaining agreements, which can be extended to non-participants, appears to run counter to the recommendations of the Jobs Study. South Africa’s labour legislation is not atypical of that found in many industrialised and emerging market economies.

(IMF, 2000a, 30)

How can policy makers create an environment which minimises the negative effects of trade unions, while encouraging them to contribute to economic growth and equity?

(World Bank statement, in Weeks, 1999, 163)

South Africa in the 1990s has seen increases in real wages, in union power and in unemployment. Are these developments related, and will South Africa’s new European-style job security laws help the unemployment problem? The paper attempts to answer this question using a comparative framework. South Africa’s labour laws and outcomes are compared with eight other industrialised and emerging economies (chosen by Business South Africa), as shown in the accompanying tables. There have already been two comparative investigations of South Africa’s labour laws and outcomes, by the South African Foundation (SAF, 1996), and the IMF (2000a). The approach here is closest to that of the South African Foundation (1996), but with the advantage of four years more South African data. The IMF study is less detailed, and came to the challenging conclusion given in the quotation above. We will build on both these investigations.

Our eight comparator countries present an instructive diversity in the variables in which we are primarily interested, that is, in wages, unions, unemployment, and job security laws. This diversity is a result of different histories, and different government industrial policies. Knowledge of this background is essential to appreciate labour developments. Therefore, Appendix 1 presents a thumbnail sketch of the labour market background in each country. This information will be drawn on as appropriate.

In South Africa, the main problem is how to increase employment. Employment in turn has many determinants giving rise to the OECD Jobs Study (1994) recommendations as follows:

1.     Make wage and labour costs more responsive to local labour market conditions and skill levels of workers.

        As the South African Foundation (1996, 91) puts it: “The South African labour market functions exceptionally poorly, especially at the low skills end”. The wage aspect is important, and we need careful analysis of real wage trends and trade union arrangements in our nine countries.

2.     Reform job-security laws that reduce job expansion, and increase unemployment duration.

        This aspect could be fundamental given the 1995 Labour Relations Act coupled with the 1997 Basic Conditions of Employment Act and the Employment Equity Act. We need a thorough analysis of job security provisions across the nine countries.

3.     Reform tax and welfare benefit systems that both decrease the demand for labour and reduce the incentive to take a job.

        The tax-benefit system is not so disadvantageous in South Africa (although studies show it increases unemployment elsewhere), so the comparison here need only be brief.

4.     Improve labour market skills through improved training and education systems.

        However, as the South African Foundation (1996, 105) notes, too much should not be expected of training since “it is difficult to train someone without a particular job in mind”. General education programmes are less controversial. The high education levels of, for example, Korea must help growth. South Africa is at the other end of the spectrum. At the same time, education programmes are a long-term issue and cannot bear fruit if the employment and investment are not forthcoming. Nevertheless, a brief comparison of this important factor is required.

The plan of the paper is to discuss areas 1 through 4 above in turn. In the next section we will take up real wages, unemployment and trade union issues. Then in the third and fourth sections we will consider job security laws and, briefly, the comparative position with regard to tax-benefit and education systems. Conclusions and policy implications are presented and summarised at the end.


1.      The OECD Jobs Study (1994) was the outcome of a major research effort by the OECD to analyse and provide recommendations to reduce the rising unemployment affecting most OECD member states since the 1970s.

2.      The South African Foundation (1996) study considered 15 countries. This group did not include Brazil, Korea and Malaysia.

3.      For example, the IMF (1999a, 17) reports 13 per cent of New Zealand’s working age population receive welfare benefits as their major income source. Generous welfare benefits lead to high unemployment, as modern statistical studies show (see, eg, Nickell and Layard, 1999, 3053).


Source: This policy bulletin is an extract from FMF Monograph written by WSSiebert and 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.

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