South Africa’s labour market is labelled `inflexible’. The facts refute this, says the ILO’s Guy Standing
IN the1990s, most governments are almost prisoners of international opinion, even in medium-sized countries such as South Africa. Economic policy is determined not only by realities, but by impressions that filter through a small community of commentators.
Those in responsible positions need to recognise that unless they take account of the credibility factor in their statements and actions, they may suffer the consequences. This does not mean they must accept orthodox policies, merely that they must have a strategy for maintaining credibility.
The labour market is a good example.
We are told South Africa suffers from “labour market inflexibility”, that investors are put off by the regulations and trade union power, and that it has “the highest unemployment in the world”. Although there is no evidence to support those claims (except for what all agree are woefully inadequate data), the images feed into financial brochures and shape perceptions of the country’s policy. In turn, policymakers are pushed into contemplating reforms to gain credibility.
To counter the problem to some extent, a reforming democratic government can respond by generating up-to-date, legitimate information. Take employment. Critics claim South Africa has “jobless growth” and “ever- rising unemployment”.
Only last week, a leading international financial newspaper stated that “official unemployment is 33%”. In fact, there have been no unemployment figures since October 1994.
As we show, the figure then was exaggerated by over-estimating the number of unemployed and under-estimating employment. Since then, there has been economic growth, and there is reason to believe employment has risen, much of it unrecorded, because of its informal character, the growth of out-sourcing, contract labour, and so on.
Yet invalid claims of jobless growth are used to justify draconian proposals, including lower wages for low-paid (black) workers. Unemployment is serious, but it does not help anybody to exaggerate.
Similar problems arise with the assertion that the labour market is inflexible. Our review concluded that there is no evidence to support this.
Rather than repeat the arguments, let me mention some examples. Some observers make much of industrial (bargaining) councils as a source of inflexibility and unemployment. However, not only are a dwindling minority of workers covered by them, but the number covered by “extensions” may be matched by the number covered by “exemptions”. The scope and application of council agreements are such that it is a system of flexibility, which may wither away.
Take clothing. There are seven main industrial council agreements, two others negotiated between employers and the South African Clothing and Textile Workers Union, and one wage determination, divided into four areas.
For any grade there are about 60 minimum wages differentiated by area, including traineeships. There are numerous “exemptions”, granted on an ad hoc basis. The minimum wage for a labourer varies from R285,50/week in the greater Cape Town area, covered by the Western Cape industrial council, to R163,00 under the Isithebe agreement.
The wage determinations set much lower wages for the same jobs, and different minima co- exist within small geographical areas. With little bureaucracies all over the country, the system is so flexible that one wonders whether it is worth having.
Another example is the flexible arrangements that apply to industrial estates scattered across the country. The Temporary Removal of Restrictions on Economic Activities Act of 1986 ceased to have effect in March 1994. But as proclamations issued under the Act have not been withdrawn, they still apply.
Firms operating in those areas are thus exempt from wage regulations and key sections of the Labour Relations Act, Wage Act, Basic Conditions of Employment Act, and Machinery and Occupational Safety Act.
Although one can document the flexibility inherent in South Africa’s labour market, an image of “inflexibility” is created by assertions and a too-literal reading of labour laws, leading us back to the issue of credibility.
Globally, as employment and payment systems become more flexible, labour forces are fragmented, whereby more people are detached from statutory regulations, welfare systems and institutions. Insecurity is rife, taxes and welfare contributions are avoided or evaded, and inequities are glaring.
While there is no dichotomy of “insiders” and “outsiders”, there are diverse patterns in which the core of full-time employed workers is a dwindling proportion of the total. As laws are modified to protect non- core groups, the statutory system is likely to become so complex that the capacity to implement it and to monitor its outcomes is eroded.
Critics say regulations create a straitjacket, while workers feel they have inadequate protection.
Statutory regulations must set broadly accepted parameters of decency. To complement those, there should be encouragement for what we call voice regulation – mechanisms for bargaining between representatives of all labour groups, in conditions conducive to security, flexibility and economic efficiency.
Achieving a good balance between statutory and voice regulation is delicate. That is why a negotiated incomes policy is needed, based on a national, regional and company level policy.
At national level, the much-used term “social accord” is unfortunate, conveying an impression that government, business and labour representatives will go into a huddle and emerge with a blueprint involving wages, prices, taxes, interest rates, and much else. This could at best be a credibility- raising experience that would dissolve in mutual recrimination.
What is needed is a step-by-step process in which representatives bargain over desirable trade-offs. The National Economic Development and Labour Council has been moving in that direction. International norms should be the guiding principle. For example, agreement might be reached on reducing the undeniably long workweeks in return for measures to lower labour costs and raise productivity. Similarly, there might be negotiations on fiscal measures to compensate regions and enterprises hit by economic restructuring, or on narrowing the income gap.
Many issues could be negotiated at national level through such progression bargaining (the opposite of United States-style concession bargaining). Others would be better negotiated at regional or sub- regional level, which is why we hope regional employment and development councils will emerge.
To succeed, there must be a programme of worker education and genuine effort to involve those on the margins of the business and worker communities.
In flexible labour markets, incentives to good practices have more prospect of success than sanctions against bad. Of course, laws should identify and penalise unacceptable practices. Yet encouraging the good would discourage the mediocre as well as the bad, and shame the perpetrators of both. And encouraging good practice is also in the spirit of the era.
Guy Standing was co-ordinator of the recently published ILO Review, Restructuring the Labour Market: The South African Challenge. Views should not be attributed to the ILO