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This is “the truth” about jobless growth according to Ray Hartley

November 24, 2013

The government has pointed out the need for greater labour market flexibility to create work but it has never enacted any amendments or laws to introduce it.

Everyone agrees that the biggest challenge facing South Africa is joblessness. This is usually put down to years of “jobless growth” during which the economy has improved, but the unemployment rate has remained stubbornly at 25%.

But what has caused this jobless growth?

What if you could identify the decisions, laws and regulations that have stopped jobs being created?

The first and most obvious cause of joblessness has been the Labour Relations Act of 1995. It sought to award workers the “victory” they had fought for during the struggle years when labour law favoured business.

The problem is that the LRA went too far the other way, making the labour market “inflexible”, a way of saying that it made it so much harder for employers to manage and fire workers that they simply avoided hiring them in the first place. It has been in operation for 18 years. During that time South Africa failed to create jobs at anywhere near the rate of its emerging-market peers.

In its October Article IV Consultation on South Africa, the IMF said South Africa had “poor labour market outcomes” because “collective bargaining between large incumbent firms and labour unions is contributing to above-market-clearing wage settlements that are binding on the entire sector”. This created an unhealthy “insider-outsider dynamic” with big companies and big unions making deals to suit each other to the exclusion of those without jobs.

Goldman Sachs recently pointed out that wages were outstripping productivity, making it more and more expensive to hire South African workers.

The government itself has pointed out a need for greater labour market flexibility. It did so in its 1996 Growth, Employment and Redistribution strategy, in its 2006 Accelerated and Shared Growth Initiative and in last year’s National Development Plan.

But it has never enacted any amendments or laws to introduce greater flexibility.

In fact, it has done the opposite. Parliament passed a series of amendments to labour law, making it less flexible, and they are awaiting signature by President Jacob Zuma.

These amendments seek to restrict the activities of “labour brokers” — agencies that place temporary employees with companies that have flexible workforce needs. They also seek to allow the labour minister to prescribe wage increases and to extend collective bargaining agreements between unions and employers to other parties.

Business Unity South Africa has warned of “significant” job losses if the amendments are made law.

In July last year, the results of a study by policy research organisation sbp and Professor Neil Rankin of the University of the Witwatersrand, found that about 215150 jobs would be lost as a direct result of changes to the terms of service of part-time employees.

“Anywhere between 11,684 and 105,155” jobs would be lost “should amendments prescribing the wage increases on actual earnings be introduced”. It also found that between 38,671 and 80,783 jobs would be lost by extending collective bargaining agreements to other parties.

The effect of the amendments would also be to reduce pay and add “a significant extra administrative burden on business”, the study found. The study’s findings and the plea from business have so far been ignored by government.

The International Monetary Fund (IMF) warned that the restriction of labour-broking “would come at the high price of even less job creation. Labour brokers should be encouraged unless problems with dismissal practices are addressed in parallel,” it said.

Another cause of job losses has been well-intentioned regulation, such as the Financial Advisory and Intermediate Services Act of 2002.

Some people, such as the Free Market Foundation’s Leon Louw, believe that the act has had the unintended consequence of squeezing smaller, independent advisers out of the industry.

He says the key measure of “policy persistency” — the rate at which policies are cancelled within their first year — has gone up from 12% to 18%, suggesting that the quality of the advice offered is worse than ever.

In a reply to a question in Parliament earlier this year, Finance Minister Pravin Gordhan said that 15,977 advisers were no longer practising after their licences were withdrawn, suspended, declined, or they were debarred.

Louw holds that these people lost their jobs due to over-regulation. Gordhan, in his reply to Parliament, argued that the regulatory clampdown was in line with the global trend “to tighten financial regulations, not lessen them”.

“There is a need for tougher licensing and fit and proper criteria to apply to all financial services providers, and to take adequate steps to prevent theft of deposits, reckless lending, money laundering and other financial crimes,” Gordhan said.

Another well-intentioned regulation that is going to cost tens of thousands of jobs is the proposed ban on liquor advertising.

The government says it will reduce the negative impact of alcoholism by lowering alcohol consumption through the ban.

But a study by Econometrix found that the actual effect of the ban will be negligible when it came to alcohol consumption.

Econometrix MD Robert Jeffrey said: “The majority of studies that we have reviewed found that the major factors that influence young people to drink are: family environment, including parent and sibling behaviour; peer behaviour; socioeconomic status; personal attitudes and personal problems.”

Instead, the ban would wipe out R7.4bn in GDP at 2011 prices, reducing tax receipts by R1.8bn.

This in turn would result in the loss of 2,573 highly skilled employees, 5,288 skilled jobs and 2,779 semi-skilled workers. Econometrix has warned that a total of 11,954 people in employment would lose their jobs if the ban went ahead.

The estimated effect on trade is that exports would decrease by R225m, while imports would decline by R304m.

Another investigation by the marketing guru Chris Moerdyk found that the brunt of the advertising ban would be borne by the SABC (R400m), DStv and e.tv (R500m) while a further R2.6bn would be lost in sports sponsorship and development.

The effect of the ban on alcohol consumption would be “negligible”, according to Moerdyk. Canada, Denmark and New Zealand had imposed and then reversed similar bans after it was found they had no effect on alcohol abuse.

South Africa ranks “40 out of 40” countries measured for “licence and permits systems, regulatory and administrative opacity”.

The IMF cited a survey by the consultancy Grant Thornton entitled Emerging Markets Opportunity Index: High Growth Economies, which found that regulation and red tape were the second-largest barrier to business expansion with manufacturing most affected.

“Problems include the high cost, complexity, and amount of time it takes to deal with red tape associated with starting and running a business in South Africa.”

Despite this, the government has proposed another layer of red-tape in the guise of the Licensing of Businesses Bill.

According to the law firm Bowman Gilfillan, the bill would require all businesses to obtain a licence from each municipality in which they operate.

The bill allows for licences to be revoked summarily, including if “illegal immigrants” were hired by the business.

Source: Business Day

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From → Economy, Opinion

One Comment
  1. Geoff permalink

    Have a look at the latest quarterly labour force survey… If you look at the number of unemployed – not the ratio of 25% – you will see that the number is increasing. The implication is that not only is there “jobless growth” but that our economy is not expanding sufficiently to employ the growing population. This, in turn, implies that the tax payers are supporting an ever-growing number of unemployed (eroding the tax base in other words). If this trend continues, it will be interesting to see where government gets its money from because everything received from taxes will be going to grants.

    Like

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