If the South African government wishes to resolve this country’s unemployment problem, it must allow citizens to be adults and to have the freedom to negotiate their own terms of employment. Legislating people into employment cannot solve the unemployment problem. If the proposed amendments announced by newly appointed Minister of Labour, Nelisiwe Oliphant, at the final cabinet meeting of 2010 are passed, they will exacerbate this unacceptable, economy-killing and soul-destroying situation.
The four bills open for public comment until 17 February are, the Basic Conditions of Employment; Labour Relations; Employment Equity, and Employment Services Bills.
The proposal to eliminate labour brokering in SA has attracted the most criticism. Unsurprisingly, trade unions are vehemently opposed to labour brokers. COSATU’s general secretary, Zwelinzima Vavi, has said, “We want a total ban of the system that has condemned so many to new slavery by what [has become] known as human traffickers." But we have to be very aware that if the proposed amendments are passed, and the trade unions get what they want, unemployment in SA will skyrocket.
A labour broker or “temporary employment service” is defined in Section 198 of the Labour Relations Act (LRA) as a person who, for reward, provides another person to a client to work for that client for remuneration. Section 198 also provides that the temporary employment service (i.e. the “labour broker”) is regarded as the employer of the worker in question. Thereby, the labour broker, not the client, is the employer of the worker. This effectively allows the client to outsource all his labour requirements (including labour law problems) to the labour broker. The reason why this round about way of doing business has developed is due entirely to our existing labour legislation. The laws meant to protect workers create such an unnecessary and intolerable burden on employers that they prefer to pay labour brokers a fee to administer their staffing requirements and problems
The proposal is that Section 198 of the LRA should be repealed and replaced by the Employment Services Bill. According to a new, stricter definition of “employer” included in this proposed Bill, no temporary employment service will be able to be the employer of any workers that it places in work, effectively bringing an end to labour broking as we know it. How can we let this be when Loane Sharp from Adcorp Holdings says, “labour broking [is]…responsible for about 1-million South Africans in work on any given day, and is the single biggest and most effective channel for introducing never-employed black youth into the labour market”?
Labour brokers provide valuable employment for those who voluntarily seek out their services rather than face the bleak alternative of being unemployed. It makes no sense to ban them. If, what the unions are clambering for, every employer is forced into having a fixed, permanent workforce whose members can be dismissed only with difficulty, employers are going to think twice before hiring new workers. The obvious, unavoidable consequence of this will be an increase in unemployment.
The proposed amendments go far beyond just banning labour brokers. For example, they propose that employers be forced to pay employees who do the same work, the same salary. An equal work, equal pay strategy like that which has been tried before and which has been found, because it ignores the fact that people are unique and respond differently to different circumstances, to be unsuccessful. There is even a proposal to establish “Productivity South Africa”, which amongst other things aims “to promote a culture of productivity in workplaces”. But, hang on, what about the proposal that every employee engaged in the same work should be paid the same? How will more productive workers be rewarded for their greater productivity if they are paid the same?
One of the tasks of economics is to explain the forces that affect human decision-making, and a key element of economic theory is that incentives matter. When incentives change, peoples’ behaviour also changes. Compelling employers to pay the same wage to employees in the same job is a recipe for disaster and will disincentivise improvements in productivity. Government cannot simply legislate improvements in productivity! Businesses are already trying to maximise their workers’ productivity in order to maximise profits. Does our government think it knows better how to run a business than those who are in the business of business? Productivity SA also aims “to support initiatives aimed at preventing job losses”. Employers do not really want to get rid of productive employees. They have usually invested a significant amount of time and money in employees who are productive.
Another budget-busting, ill-conceived idea is the proposal to establish a state employment agency to which every private-sector job vacancy and every new hire will have to be reported. Why create this unnecessary layer of taxpayer-funded bureaucracy when there are thousands of private employment agencies already doing the job quite effectively and which adult work seekers voluntarily choose to use? And scandalous is the proposal that if businesses fail to notify the public employment services agency of any vacancy or new position they will be slapped with a minimum fine of R10,000. Another great incentive for businesses to close down and let the unemployed number grow!
The Basic Conditions of Employment Bill proposes that the Minister be given the power to prescribe representative thresholds of a trade union to have the organisational rights of access to employers’ premises. In other words, with backing from the Minister, unions will be able to enter private premises in order to recruit members. It also proposes giving the Minister the power to set minimum increases of remuneration in addition to setting minimum rates of remuneration. All incentive is negated when wages are determined politically rather than what is justifiable economically or as a result of productivity. The only foreseeable result, yet again, is increased unemployment.
Government’s responsibility is to create an environment that will increase employment opportunities, reduce unemployment, and reduce poverty. The proposed amendments to our labour laws achieve none of these objectives. Allow business the freedom to operate and grow, and the problems of unemployment, low wages and poverty will fade into nothing.
Jasson Urbach is an economist with the Free Market Foundation. This article 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.
FMF Feature Article / 01 February 2011