In tackling unemployment in South Africa particular attention needs to be paid to the growth of those economic sectors capable of creating new employment. According to this report of an ANC Economic Transformation Committee workshop, labour market regulation is one, among many, of the factors that needs to be considered.
At its core, apartheid was a system to control and coerce black labour to maintain the economic basis of white minority domination. Historically, the accumulation strategy of capital in South Africa has been based on cheap labour, secured through the deployment of coercion and repression. It was with this in mind that the Freedom Charter demanded that: "There Shall be Work and Security!" Since 1994, the legislative and regulatory environment of the labour market has been radically transformed, and in the process many of the Charter's demands have been realised. The labour market framework now in place builds stability, and avoids tension, conflict and strikes. The labour stability that this has brought has allowed for massive social transformation without disrupting production, which must be regarded as a major achievement of the democratic order. But the last decade has also seen our labour markets transformed by a new set of objective circumstances. This includes globalisation; the complex array of changes in technology and international economic relations that characterise our world in the twenty first century. At the same time, the social transition that has accompanied the demise of apartheid has seen a vast increase in labour market participation. Factors underlying this have included an increase in female participation in labour markets, as well as migration to urban areas. Democracy has meant that the problems of unemployment and underemployment are no longer confined to the bantustans. Freedom has also seen a significant relaxation of controls on the movement of people from poorer regions of Africa. The First and Second economies in our country are separated from each other by a structural fault. The Second Economy emerged during the long period of colonialism and apartheid as a result of the deliberate social, political and economic exclusion of the African majority by a racist state. While exacerbated by the imperatives of globalisation, the restructuring of the labour market also reflects, to some degree, the response of capital to the extension of citizenship and labour rights to the previously disenfranchised.
This restructuring has segmented the labour market into three overlapping zones:
The location and interaction of these zones of work differ considerably across the various sectors and sub-sectors of the economy. In particular, many of the high growth sectors of the economy, where jobs are being created rapidly (such as in services and construction) are sectors in which union density is low and the effects of labour market regulations are weak. The differentiated impact of labour and other regulations in respect of rural economies, the position of women and other aspects of our economy are also germane to this discussion.
It is against this background of a labour market that is highly fragmented and segmented that the current labour relations regime has sought to accommodate complexity. It is a framework that rests on two pillars described as 'regulated flexibility' and 'voice regulation'.
'Voice regulation', or the role of bargaining between workers (and their unions) and employers (and their associations) in many aspects of the employment relationship, seeks to avoid either 'bureaucratic regulation' or an over-reliance on market forces in the labour market. 'Voice regulation' plays a key role in balancing the twin imperatives of 'flexibility' and 'security' in the labour market. 'Regulated flexibility', as a policy of government was outlined in GEAR
[Growth, Employment and Redistribution] as a strategy to "extend the protection and stability afforded by existing labour market regulations to an increased number of workers". However, there was also recognition that this would be done in a manner that takes into account 'voice regulation' and the needs of particular sectors and regions of our country.
This poses the question, if we introduce a blanket dualism in our regulatory approach, would this not entrench duality, as opposed to the current system, which attempts to accommodate the complexity of highly segmented labour markets? On the other hand, accommodating complexity requires institutions that can operate at a high level of efficiency and responsiveness. This poses questions about the capacity and organisation of government, business and the union movement in the implementation of the current labour relations regime. To what extent does government inefficiency and 'red tape' constrain entrepreneurial endeavour? Are unions and employer organisations sufficiently organised to manage the complexity and diversity in our labour markets?
LABOUR MARKET EFFICIENCY
Much of the public debate about labour markets focuses on the supposed impediments to job creation that are imposed on business, especially small business, by the current regulatory regime. In particular, it is frequently argued that 'inflexibility' in respect of hiring and firing, as well as high costs imposed by the Basic Conditions of Employment Act (BCEA), militates against employment creation. However, at present there is no empirical evidence to suggest that labour market regulation poses the most severe impediment to job creation.
Neither is there research that estimates the potential employment gains that would result from a widespread deregulation of the labour markets. Clearly, the recent wave of retrenchments in exchange-rate sensitive sectors (such as mining and clothing) has not been significantly impeded by labour market regulations. Given that these are also sectors characterised by highly organised unions and employer associations, where labour market regulation is easily enforced, the claim that labour market regulation prevents businesses from firing and thereby constrains employment growth is yet to be demonstrated. In the second economy, the high employment growth sectors and small business environment, and the absence of unions or employer representatives means that the existing labour market regulations have little impact on the practices of employers.
When we consider the functioning of the labour market holistically, then questions of 'regulation' only form a sub-set of a broader set of issues related to the efficiency of labour markets. Another set of issues that impede efficiency is those related with (asymmetric) information, search and discrimination in the labour market. Figure one gives an overview of factors that may impact on the efficiency of labour markets.
An efficiently functioning labour market is one that is able to match supply to demand in a manner that achieves both social and economic goals. From this perspective, the key challenges facing the labour market are not a simply a dichotomy between 'regulation' and 'deregulation'. Rather, we would need to pose the following questions:
Empirically, there is considerable evidence to suggest that labour markets are not functioning efficiently. Among the key labour market distortions is widespread racial and gender discrimination. The persistence of inequality in terms of access to employment by individuals of different racial groups is evident in Table 1. Among tertiary educated members of the labour force, Africans have the highest unemployment rates. In 1995, at 10.1%, the unemployment rate among African graduates was four times that of whites, while in 2002 it was more than six times higher (25% vs. 4%).
At the same time the gap between African graduates and others generally widened over the period, with unemployment among Coloured and Indian graduates declining slightly. Similarly, unemployment rates among matriculants were highest for Africans, rising from 42% in 1995 to over 55% by 2002, far higher than any other race group. [Bhorat, 2005] This reflects the continuing marginalisation of the majority of the people, largely on the basis of race, from the networks and information that run through the first economy. In essence, the question becomes one of how to bridge the divide between the First Economy and those who seek work in the First Economy, but are confined by the burden of history and geography to the marginalised economic sectors, which have been described as the Second Economy. In other words, how do we build the staircases between the two floors of our economy.
With respect to labour market regulation, we should also pose the question:
how do we break down the walls between the First and the Second Economy?
Are there regulatory constraints that hamper First Economy businesses (whether large or small) from absorbing labour in the Second Economy? While this question cannot be ignored, at present there is no convincing empirical case for believing that the labour market regime is a significant impediment to job creation.
Table 1: Secondary and Tertiary unemployment rates 1995 and 2002
| Qualifications | Race | 1995 | 2002 |
| Completed Tertiary | African | 10.1 | 25.2 |
| Coloured | 8.3 | 7.4 | |
| Indian | 5.6 | 4.8 | |
| White | 2.5 | 4.0 | |
| TOTAL | 6.6 | 14.6 | |
| Completed Tertiary | African | 42.1 | 55.7 |
| Coloured | 20.3 | 23.8 | |
| Indian | 13.7 | 24.1 | |
| White | 4.9 | 8.6 | |
| TOTAL | 27.0 | 40.7 | |
Source: Bhorst Oosthuizen 2004 |
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SMALL BUSINESS AND COLLECTIVE BARGAINING
In this year's State of the Nation Address, President Thabo Mbeki said:
"In consultation with our social partners, a number of constraints limiting our capacity to embark on a higher growth path, will receive our urgent attention. Based on the review of the regulatory framework as it applies to small, medium and micro-enterprises, before the end of the year, government will complete the system of exemptions for these businesses with regard to taxes, levies, as well as central bargaining and other labour arrangements, enabling these to be factored into the medium-term expenditure cycle."
These initiatives pose the question of how government can act to improve the efficiency of a range of factors in the regulatory environment that may hinder the development of small business? In general, the proportion of people employed in small businesses in South Africa is much lower than in most other countries. The reason for this stems from a number of factors, including monopolistic market structures, the supply of entrepreneurs, skills deficits and regulatory impediments such as those created by tax administration, levies, local government by-laws and laws affecting particular sectors of the economy. Labour market regulation is also a factor.
The impact of labour legislation on small businesses is not easy to discern.
Anecdotal evidence is sometimes presented to suggest that small businesses find the labour laws to be burdensome and an administrative nightmare. Yet survey evidence also exists that points to other factors, such as proximity to the market place and access to capital, as being far more significant in inhibiting the capacity of small businesses to expand employment. At the same time it is already very difficult to implement and enforce labour laws among small businesses, particularly in the survivalist sectors.
Already, the concern for a balance between 'flexibility' and 'security' in the labour market has led to considerable efforts to take into account the needs of small businesses during the formulation of labour policies. In 1996 the Labour Market Commission raised the issue of a greater voice being given to small businesses in bargaining councils. Since then, legislation has introduced some 'variations' related to small businesses, the most important of which was the introduction of a Ministerial Determination for Small Business in 1999. This determination, in terms of the Basic Conditions of Employment Act (BCEA), covers firms employing less than ten employees and seeks to 'vary' the floor of rights provided to workers under the Act. The main areas covered relate to overtime, annual leave and the averaging of hours, in response to the needs of sectors that were experiencing difficulties with compliance with the BCEA, such as general dealers, private security firms, transport companies and service stations.
The determination provides for employees to work no more than fifteen hours overtime a week and to be paid at least one and a third times the employee's wage for the first ten hours of overtime per week (above this the normal BCEA rate of one and a half times applies). It also provides for the averaging of hours and the possibility for employers and employees to reduce an employee's entitlement to annual leave by the number of days of family responsibility leave.
Amendments to the Labour Relations Act in 2002 also contain features that are helpful to small businesses, including those covering bargaining council agreements. Bargaining councils are voluntary associations of employer and employee organisations. The law does not prescribe the demarcation of the sectors covered by the bargaining councils. The parties to the bargaining councils voluntarily associate and decide on the sector and area in which they operate.
Each sector in which these voluntary arrangements have been established has its own economic dynamics. Consequently, the definition of what constitutes a small business varies widely from sector to sector. For example, if the benchmark we choose is the number of employees a company has, then the definition of a small business would differ substantially in the IT or services sector from the metals and engineering sector.
Bargaining council agreements explicitly recognise differing firm sizes within the sector. In general, agreements are usually tailored to suit the smallest, most vulnerable companies, while the larger and better organised companies negotiate plant or company agreements which set minimum wages and working conditions far in excess of the collectively bargained agreement.
Where bargaining councils fail to accommodate differentiation within the sector, the Minister of Labour is empowered to enforce this through the granting of exemptions.
At present, a collective bargaining agreement may not be extended to non-parties unless the Minister is satisfied that the non-parties fall within the Bargaining Council's registered scope. At the same time provision must be made in the collective agreement for an independent body to hear and decide any appeal brought against the issuing of an exemption. In terms of responsiveness to applications for exemptions the Department of Labour has generated the following statistics:
Again the question must be posed, given the widely differing economic dynamics from sector to sector, would not the introduction of a blanket dualism in our labour market regulation result in entrenching the fragmentation of the labour market, rather than breaking down the patterns we have inherited from apartheid? The suggestion that blanket exemptions for small businesses be extended to any firm employing less than 200 workers would, in practice, mean the abandoning of our labour relations framework as a whole, since the vast majority of firms fall below this cut-off point.
Given that larger corporations conduct plant and company level negotiations, a simpler and easier way to achieve the same objective would be to simply scrap the collective bargaining arrangements altogether. It is likely that a highly dualistic approach would also lead to labour displacement and, as has been the case in a number of European countries, perverse incentives would also be created. For example large companies employing many hundreds of people might register as a collection of small firms, limiting the size of each workshop to the stipulated cut-off point.
CONCLUSIONS
The solutions to the current high levels of unemployment in South Africa lie in accelerated growth and decisive action to overcome the two-economy divide. Particular attention needs to be paid to those sectors of the economy that are currently expanding rapidly and creating new employment.
In these sectors the question of labour market regulation is one, among many, that needs to be further considered. Further research is required to quantify the alleged ill-effects of labour market regulation, to answer questions about the efficiency of institutions and labour market outcomes, and to identify the broader inefficiencies in the labour market and their impact on job creation. In the context of answers to these questions, labour market reform should be considered as one part of a broader package of measures, which link industrial policy, macroeconomic policy and social policy to our objectives of halving unemployment by 2014. In particular, consideration must be given to the potential to create employment in the second economy, which, by definition, is largely untouched by the current labour regulation framework.
With respect to small business a coherent view is required of the impact of a wide range of government interventions on their employment creation capacity. At the centre of this discussion should be the questions of 'red tape' in the implementation of government regulation, as well as the coherence and integration of services to small business across the departments and spheres of government.
At the end of the day, the potential gain from deregulation needs to be assessed against the potential political, economic and social costs of pursuing such an approach in the post-apartheid context. It must also be judged against the vision we embraced at the Congress of the People in 1955.
This is a summary report of discussions at an ANC Economic Transformation Committee (ETC) workshop held in April 2005. It does not necessarily represent the view of the ETC, but rather reflects the discussion and inputs at the workshop.
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