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Labour market change is necessary, and it needn’t hurt

France modified its strict and rigid labour legislation to allow for more private sector flexibility when it comes to working hours and pay – and SA should consider all options.

President Cyril Ramaphosa’s to-do list is unbelievably long. But if he is serious about turning around a stuttering economy and making a dent in a staggeringly high unemployment rate, there are legislative changes he should seriously consider implementing over the next few months.

The one thing he should look at is the regulatory framework governing labour policies and its impact on the labour market and overall employment – or lack thereof. Doing this is critical as the labour market needed to be flexible in order to create opportunities for more participation and absorption.

The economic reality is what it is, but this time everyone is paying the price. Just look at the real-life socio-economic reality – South Africans are feeling the negative effects as various sectors decline and employment becomes more precarious. We watch government take decisions on things we have no control over yet are affected by.

A problem that can’t be wished away

There is no wand to wave in fixing the economy, no time machine to rewind to undo the politics that got South Africa here, and most certainly no chance of wishing the problem away. The country finds itself caught up in the double bind of populist political rhetoric and an economy that is deteriorating.

Read: Will the ANC NEC rally behind Ramaphosa?

The country’s misfortunes have been magnified by the macroeconomic effects of globalisation on emerging markets in the past 10 years as well as changes in the global labour market. For example, the fragmentation and outsourcing of production across international borders has enabled multinationals to access sectors that were previously sheltered.

Yes, positive changes have happened. However, the downsides have been profound. Globalisation has changed the nature of work, with technology becoming more and more embedded. In a country with low skills, this has added to the rise in unemployment and low labour force participation. Government policies have failed or struggled to keep up with these changes. 

Read: Fiddling and fighting while the economy withers

Against this backdrop, I believe South Africa’s labour legislation has to be reformed. The Ramaphosa administration has to be the one doing it.

Despite the risk of upsetting unions and facing a possible backlash within a constituency that has supported his presidency, who better to convince trade unions about the necessity of this reform than one of their own?

What will be critical is for the reform to be presented as a government project spearheaded by the economic cluster and labour departments, not a project from the minister in the presidency or the president’s special project.

The reasons for reform are well-known. This is South Africa’s number one problem – a problem that, worryingly, has been unable to deal with youth and long-term unemployment that is unacceptably high and still rising.

The French experience

How should this reform be carried out? By giving companies more room to negotiate on working hours and pay in order to adjust to the new market environment as the world of work changes. Here, the French experience would serve us well given that France and South Africa have similar unemployment problems. France has modified its strict and rigid labour legislation to allow for more private sector flexibility when it comes to working hours and pay.

It may be that South Africa’s labour legislation is making the country unattractive to potential employers looking at the country as a possible base for expansion of their operations.

A paper published in 2006 – Employment Patterns in OECD Countries: Reassessing the Role of Policies and Institutions by Andrea Bassanini and Romain Duval – found no conclusive evidence that tough labour legislation affects employment.

However, looking at the economy’s inability to absorb labour market outsiders, especially young graduates, it is obvious that reform is necessary.

The negative impact of our current labour legislation outweighs the intended benefits, such as reducing job losses during economic slumps.

South Africa’s economy is not like those of France or Germany, where stricter labour legislation had some positive effects during the 2008 financial crisis.

Unintended consequences

In South Africa, labour legislation has become a stumbling block that has seen unemployment increase among young people. Reform is necessary to spur the private sector to open up some of its locked professions and facilitate mobility for those who are unable to enter the labour market.

To this end, government should consider the introduction of temporary contracts and permanent contracts that are not bound by minimum-wage conditions but are guided by clearly defined working time and pay.

It is critical for workers to be able to move from one sector to another, depending on the growth experienced in any particular sector. This would be possible with a flexible regulatory framework that encourages businesses to expand their operations.

Events in the world such as economic crises, economic integration, globalisation and new forms of jobs and employment compel labour markets to change in order to keep up. In this sense, the South Africa labour market is not unique or the exception.

If it remains rigid in its approach, however, it may face profound economic, social and political dangers that can have terrifying consequences.

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As an employer, I can tell you that your focus is on the wrong problem. Forget about all the rocks the government and their policies places in the path of business. Let’s just concentrate on the labour issues. Consider the fact that I have to take a huge risk by starting a business, but our labour laws then do not discount that by making it easier to get rid of the employees who won’t, can’t, or shouldn’t work. Furthermore, the quality of potential candidates are woeful, to put it mildly. (I have firsthand experience with people who passed grade 11 and can’t read or write.) Don’t forget about universities and colleges turning out graduates in fields that no business needs. Then we have the problem of less than stellar productivity, which is a country-wide phenomenon. I’m afraid, fiddling with pay and working hours is not going to help, because you are assuming that potential employees are all employable, which they aren’t.

Nail. Head. Less about employing people but the truth is that the vast amount of our fellow citizens are unemployable, certainly in any modern sense

100% and let me add that the labour laws and perceived employee friendly CCMA as well as union noise all makes for encouraging aggressive workers; threatening to strike, kill supervisors etc. The little business I am involved probably spends about 10% of its labour bill on countering these issues and contracting labour for as short a term as possible, within the law, just to limit these issues. Crazy.

Longtime worldwide trend. Trade unions, the first step to political power. South Africa, late comer, did follow. With predictable results. One of them is a disappointed but fateful flock.
Hoping for happy times, promised by leaders, to come, one day. This point is long passed in other parts of the globe. One for all, all for one is a pipe dream. French ever revolted with amazing success. Not for the working class. They remained serfs and became the handlers of the time known as industrial revolution. World war one was their crown. Dying for king and his country. To take Europe as a leading sample for labor solutions have to read again. The part colonization especially.

The ANC have a big problem. The people who vote for them have conflicting interests. The onerous labour legislation in South Africa assists one sector of the population. This includes unionised labour and the union leaders themselves. They get above market related wages. In return, the unionised workers vote ANC. The unemployed multitude remain marginalised. Nobody wants them as they come complete with a plethora of rights but zero obligations or training. Labour legislation is but one obstacle in the path of a better life. To placate them the ANC makes them into parasites with grants. Society has lost their output and has to support them. We are all poorer. Yet they continue to vote ANC as they are getting something for nothing. They can consume without producing. The other side of the zero sum game we get non unionised workers, including professionals and business. The lesson we are learning is that the ANC makes it a whole lot easier to ride the wagon than pull it. Returns on capital are shrinking driving this scarce resource overseas along with the professionals that have had it with being the ANC’s milch cows. The status quo removes all incentives to create wealth. The wake up call will come when the economy implodes and money becomes worthless. The hard lesson will then be known: nations that don’t produce wealth fail. Socialism 101.

Well said RichardtheGreat. One wonders HOW FAR AWAY is the said “wake up call” when the econ implodes…

(Perhaps, not a wake-up call, but the “current journey” of SA… 🙁

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