How our Government can Facilitate Employment

By Eustace Davie

18th July 2011

At the stroke of a pen, 5-million more South Africans could enter the workforce today. Current legislative and regulatory barriers prevent employers – from the largest to the smallest – from employing labour by mutual agreement. Because of this, more than 7- million people are being denied entry into the labour market.

The severe barriers that prevent unemployed people from entering the labour market are there to increase the job security of those who are fortunate enough to be employed. Labour unions vehemently oppose government making even modest changes to the labour laws and regulations to allow the jobless to find work. They swiftly accuse employers of ‘exploiting’ workers if they hear of any person finding a job that pays a wage below that regulated as a “decent” wage.

Government and the labour unions appear to believe that it is better for the worker to be unemployed and have no wage at all rather than one they do not consider “decent”. How can they believe that their support for stringent legislation, which prevents millions of people from getting work, places them on the moral high ground? How can they shut their eyes to the huge and escalating human misery this situation is causing?

Economies are not static but dynamic. Adding extra workers means extra production and extra capital to finance the extra production, including the cost of the wages of the additional workers. A nation with its potential workforce fully employed has a dynamic, growing economy that adds wealth and rapidly increases the incomes of all its people.

When the cost of production rises, firms tend to look at automation. They introduce machines to do what men and women do if the cost of labour rises above the cost of automated production. Unions need to bear this in mind and remember that this causes the loss not only of existing jobs but also of potential future jobs in new firms and factories. Fewer unskilled workers would be unemployed if the total cost of employing them were to be reduced, thus making their labour more cost-effective.

A zero-sum approach wrongly assumes that there are a fixed number of jobs available. It does not take account of the huge amount of additional production that would occur if labour compliance costs were lower.

According to the latest statistics from Stats SA, the typical unemployed individual is a first time job seeker, has been unemployed for longer than a year, and has not completed secondary level education. The typical potential employer of an inexperienced job seeker is an individual, small business, or non-profit organisation, in areas of activity where they would be unlikely to compete with union members. The unions should encourage employment of unskilled people in small firms. Those people, once they have learned skills, will become candidates for swelling the ranks of the unions. The fears of the unions are unfounded; their members are well protected from retrenchment and certainly from being replaced by inexperienced lowcost young people.

SA badly needs economic growth. Any increase in economic activity will create a massive demand for labour. If employers, from the largest to the smallest, could employ people by mutual agreement, at least 5-million more people would probably earn a minimum of a conservatively estimated R5-billion and potentially R15- billion per month. An economic boost to the country with R60 to R180 billion per annum lawfully flowing into the hands of millions of the poorest families in the country.

There is tremendous scope for an increase in the demand for labour. It is crucial to recognise that there will always be employment for people whose value to the employer of their productive output is greater than the cost of employing them. The cost of complying with the labour laws is a major deterrent to the hiring of labour, especially in the hiring of people with low skills. Compliance costs are as high, if not higher, for hiring a low-skilled worker at R2,000 per month as it is for hiring a high-skilled worker at R6,000 per month. Labour law compliance costs are therefore a serious deterrent to the hiring of low-skilled workers.

Although the labour unions support maintaining the status quo, they are not primarily responsible for the situation. Parliament and the governing party control the labour laws. They are responsible for preventing people from gaining employment by adopting laws that deny them the right to decide for themselves what wage and conditions of employment they find acceptable.

It is therefore the responsibility of Parliament and the governing party to remove the barriers that prevent our potential total workforce from finding work and earning a living. The more people who are self-supporting, the less call there is for welfare, the more money circulates in the economy, the faster this country’s economy will grow. More of its people will be jobproud
and few will be poverty-stricken.

Author: Eustace Davie is a director of the Free Market Foundation, South Africa.

This article is written by the Zambia Institute for Public Policy Analysis and syndicated through