Cutting wages is not an effective means to increasing employment, write Eddie Webster and Ian Macun
CONTRARY to conventional wisdom the South African labour market is reasonably flexible. This is the conclusion reached by the South African Labour Flexibility Survey, conducted by the International Labour Organisation (ILO) and the Sociology of Work Unit of Wits University and presented at a conference hosted last week by the Department of Labour.
The survey raises a puzzle: if the labour market is as inflexible as is popularly believed, why are employers able to recruit on the external labour market with so few restrictions?
Enterprises in certain sectors are free to employ temporary labour (either on contract or part-time), pay at lower rates and provide less benefits. More than 80% of the firms surveyed had employed temporary and/or casual employees over the past two years, suggesting a very high degree of labour market flexibility indeed.
Take another result: very few enterprises apply for exemptions from industrial councils (only 12%) and of these, the majority were larger companies – employing more than 151 workers.
These findings have important policy implications. Many African countries have implemented policies designed to reduce wages and achieve a flexible labour market. But recent research by the ILO shows that despite the reduction in wage and non-wage costs during the 1980s and 1990s, employment has not increased.
The researchers conclude that labour costs and a deregulated labour market are less important than labour productivity. This is crucial to ensuring successful integration into the global economy.
Labour costs in and of themselves mean very little. What counts is productivity. Low labour costs do not guarantee it. Labour in Europe is expensive, but it is highly productive.
The ILO Country Review cites comparatively poor labour productivity standards in South Africa, according to the ILO’s Guy Standing, John Sender and John Weeks in Restructuring the Labour Market: The South African Challenge. But, it says, the problem is often attributable to outdated management and organisational structures, not necessarily high wages.
Among the report’s recommendations is reduced working hours and increased shift work. The significance of this recommendation is that enterprises can respond to the productivity challenge in different ways.
The organisation of work is not fixed. Research can redefine our options in the workplace and it can help clarify how best to reshape our labour market institutions.
This leads to a second point. A useful distinction, suggests Tony Killick of the University of Sussex and author of The Flexible Economy, can be made between responsive (or passive) and innovative (or active) flexibility. Innovative flexibility refers to the creation of new institutions that help to give the economy a competitive edge.
South Africa, we believe, is an example of an innovative response to flexibility. The creation of the National Economic Development and Labour Council is one example; the Council for Conciliation, Mediation and Arbitration is another; the ILO Review’s proposal for multi-stakeholder regional development accords -called Redacs – is another.
But the creation of new institutions is a protracted process. Institutional history moves slowly. This does not mean that policies do not matter. What it does mean is that the path whereby the present has been reached influences the nature of the present.
In what way does our past shape the present? We would argue it does so in very obvious ways. The most significant example of the persistence of the past is what Naledi researcher Karl von Holdt calls the “apartheid workplace regime”. This is characterised by racial inequality, adverserialism, a low investment in the skills of black workers, and, above all, a non-identification by black workers with the goals of the enterprise.
These realities are confirmed by the survey findings; African workers continue to be concentrated at the lower end of the job structure and occupy very small shares of technical and managerial positions; 42% of all establishments surveyed have experienced some form of industrial action during the past 12 months. While many establishments reported that they provide some training, only a minority provide formal training involving classroom learning, apprenticeship or attendance at courses.
In firms characterised by such low levels of incentives, and where most unionised workers are in jobs with a low discretionary content, they are unlikely to adopt a longer-term concern for the performance of the company.
At the core then of the legacy of the past lies a low trust relationship between employer and employee. The building of trust is quite central to the new labour regime. And co-operation itself breeds trust. Trust improves efficiency. It is what James Coleman, professor of sociology at the University of Chicago, calls a form of social capital. Like other forms of capital, physical capital in the form of machines and human capital in the forms of skills, social capital is productive, making possible the achievement of certain ends that would not be attainable otherwise.
The absence of social capital is self reinforcing. For example, in the survey we found little information transfer from management to workers. A lack of communication between employers and employees leads to distrust, shirking, and disorder, which intensify one another in a vicious circle.
But we cannot wait for social capital to emerge. We can start creating it now by enhancing institutional capacity and rewarding those enterprises that are moving towards this goal. One way of doing this is through what Guy Standing and Avril Joffe called a Human Development Enterprise Index. The index scores firms on the basis of certain key indicators gained from the survey and is aimed at encouraging firms to develop good employment practices.
Another way would be to enhance the capacity of unions at the enterprise level, by providing additional resources, particularly union-approved education. Interestingly, the survey found that unionised firms have a greater propensity for introducing incentives and organisational change. Of the firms reporting to be offering monetary and/or, non-monetary incentive schemes, 84% had a recognised union. Importantly, more managers expressed their satisfaction with labour efficiency in unionised than in non-unionised firms.
In short, policies aimed at encouraging incentives are more likely to lead to productivity-enhancing behaviour in firms than policies aimed at simply reducing costs. Support for institutions, such as trade unions, is another prerequisite for greater equity and efficiency.
— Eddie Webster is director of the Sociology of Work Unit and Ian Macun is deputy director of the unit, University of the Witwatersrand