Unemployment – there are policy choices to be made

The labour market and the apparent elevation of the narrow sectional interests of Cosatu are hurting the unemployed.

Last week Statssa released the Labour Force Survey for the third quarter. Unemployment had risen to 24.5 percent (from 23.6 in the second quarter) and, even more disturbing, the total number of employed fell 484,000 to 12.885 million.

These figures would have been even worse if an additional 510 000 people had not given up searching for employment in the period and were therefore  excluded from the figures entirely. If the figures of those who have given up searching are included in the definition of “the unemployed” the  rate is now at 34.4 percent, up from 32.5.

34.4 percent? Jobs are being shed throughout the world because of the global debt crisis and the recession but South Africa’s total figures seem way out of kilter.

The reasons we have such high (and vulnerable) unemployment rates are complex and seem to be “built in” to the structure of the South African economy.

But this does not mean the government and policy makers are powerless to influence “the carrying capacity” of  this economy.

At least some of the downward pressure on employment is associated with the legislation and practice that structure the labour market. Our labour market is hugely and inappropriately “inflexible”.

The Flexibility or otherwise of a labour market refers to how easily the market is able to adapt to the changing  needs of production.

Two basic changes to “needs of production” occur regularly with the cycles and ebbs and flows of the economy more generally:

  • The need for total number of workers changes rapidly, and
  • The requirement for certain skills in the labour force changes with time.

A labour market is said to be “flexible” when an employer is easily able to access the requisite skills from the labour force and is easily able to change the size of his or her labour force in response to changing needs of production.

Now labour is not like a pile of bolts sitting in the inventory store. It is made up of human beings and it is quite appropriate that there should be constraints placed on the employer to hire and fire at will in relation to his or her changing needs vis-a-vis the general ebbs and flows in whichever particular sector he or she operates.

However, and crucially, these “constraints” should always be placed on the employer with the understanding that too little constraint will injure the individual interests of workers and too much constraint will cause the employer to seek alternatives to employing.

What alternatives can an employer seek (and this is obviously important because to some difficult to determine degree the high base line level of unemployment in South Africa is a result of employers seeking such alternatives)?

  • The employer can mechanise the production process;
  • The employer can export the production process to environments where the labour market is less restrictive,
  • The employer can break the law and participate in the thriving illegal labour market .

The complex and demanding legal framework governing the labour market has a direct impact on the total number of employed – and on “the carrying capacity” of the economy.

Government and Ruling Alliance

Which brings me to the point: we are currently seeing a deeper and more vigorous push by the Ruling Alliance to tighten the legal framework that structures the labour market.

The public face of this push is the attempt to close down the labour brokers. Labour brokers exist to serve employers’ attempt to legally circumvent the most restrictive aspects of legislation and bureaucracy that govern the labour market. It is the moral equivalent of clever lawyers working out legal ways to avoid tax.

Apartheid fell because of a simple political error by the National Party: it is impossible, in the long run, with laws and policemen and courts – and hit squads -,  to stand in the way of collective human endeavour i.e. the market. If you attempt to thwart the market it will find ways around you – possibly in a distorted form.

Imposing a labour regime on South Africa best suited to Norway or Sweden is harmful to total employment numbers in the country.

South Africa’s labour regime is responsible, to some degree, for the constant downward pressure on employment.

Cosatu appropriately attacks labour brokers – because Cosatu represents those employed in the first world conditions of the formal labour market.

But for the rest, for government and the legislature – it is crucial that they are persuaded that increased inflexibility of the labour market works diametrically opposite to the interests of the millions of unemployed people who have put their names on labour broker books in the hope of finding work – any work.

Do not imagine that in the event of labour brokers being banned employers will formally employ workers they previously accessed through the broker.

The road to hell … and all of that:

Those jobs are going boy and they aint coming back

Bruce Springsteen, My Hometown

4 thoughts on “Unemployment – there are policy choices to be made

  1. OK, I accept the argument. But the implication is that there is a deliberate application of the most cynical measures we will have seen anywhere, by those in places of influence to deprive those arguably in their own consituency from the one thing that gives them a shot at tomorrow. Is this what we are saying? And no one in Government has the kahunas to call them out?

    If what is going on is so deliberately biased against the poor and unemployed, what does this say about our institutions and the underpinnings of our democracy?

    1. I don’t for a second think this is “deliberately biased against the poor and unemployed” – if anything I imagine Cosatu and the ANC would be outraged by the claim. It is rather one of many examples of the law of unintended consequences – on the ANC’s part, anyway. The instinct to protect the weak is a good one, but it is a classic liberal mistake to fail to examine if in doing so you are not, in fact, injuring those who are weaker still. The gulf between the power of formal sector employees who are organised into trade unions on the one hand and the unemployed and marginalised on the other is at least as big as that between workers and bosses. When the ANC backs Cosatu on labour market issues that are (in practice, if not in intent) injuring the unemployed who desperately want in – and would be prepared to compromise on the quality of the job. Calls for “decent work” are great, but it takes a special kind of totalitarian stupidity to imagine that you can create “decent work” by outlawing the jobs and conditions that fall short of your definition … I realise I am starting to sound like a stuck record on the labour market issue, it is just that I am consistently astonished that our default setting is to accept that Cosatu is David to the Boss’ Goliath … No! Cosatu is the giant in the employment/unemployment equation … and unions are not inherently anything …. look at how unions became a crucial arm of organised crime in the US environment. Cosatu has every right to fight for the interests of its members, but those interests ARE NOT the interests of the unemployed and it is real doublespeak that Cosatu claims otherwise.

  2. Just a little correction: The expanded definition of the unemployment rate is 31.1% in the third quarter. In your calculation you’ve added the number of discouraged workers to the numerator. You need to add them to the denominator as well. But the point remains valid, the figures are horrible.

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