Defuse the ticking unemployment bomb before it explodes

It’s crisis time in South Africa. When 6 million of a total potential workforce of 19 million are without work and have little hope of obtaining any, when almost one-third of the potential workforce is unemployed, the government is sitting on a ticking time bomb.

Unhappy people are complaining about promises not being kept on service delivery and the failure to provide them with housing. Many of these complaints would disappear if they could only get jobs; any jobs where they can learn skills and recover their self-esteem. Being without work and being unable to get a job, month after month, year after year, destroys the self-worth of the individual. The people know instinctively that something is badly wrong but can’t understand why there is zero demand for their labour.

Government policies aimed at addressing the problem include increased government spending to create pseudo jobs in the government sector at taxpayers’ expense. The latest suggestion is for young unemployed people to be drafted into the army, the purpose being “to teach them discipline and skills”. Proponents of “make-work” programmes fail to recognise that the extra money that government takes from taxpayers to pay for such projects reduces the potential for real jobs to come into being in the productive sector of the economy.

There is a better way of solving the problem without spending scarce budgetary resources. In December 2003, the Free Market Foundation published Jobs for the Jobless: Special Exemption Certificates for the Unemployed, which put forward a proposal that would lead to a massive increase in the demand for labour at minimal cost to taxpayers. The publication has since won an international award for its potential for alleviating poverty.

Sadly, this groundbreaking idea has not been implemented, or even put to the test in SA, despite the fact that we now have a jobless rate of 32.4% when discouraged job seekers are included.

Jobs for the Jobless proposes that people who have been unemployed for six months or longer should be entitled to a special exemption certificate, which would (a) grant them exemption from all labour legislation for a period of two years and (b) protect any employer who hires them from prosecution under the labour laws. The exemption would place decision-making entirely in the hands of the job seeker – allowing certificate holders to contract with employers on whatever conditions and level of wages they – the job seekers – find acceptable. Their exemption certificates and mutually agreed written contracts would provide evidence that their employers are acting within the law. No fear of being hauled before the CCMA or the labour court.

Being free to negotiate, the unemployed would be able to exercise their right to work and legally accept employment at terms mutually agreed upon with the employer, and with more flexible employment conditions (such as longer working hours or less rigid employment termination procedures) than those mandated by the labour laws. In this way, they would have the opportunity to acquire skills and build up an employment history. This does not mean that these individuals are unprotected in the work place. While they might be relinquishing statutory protections, they would still have all the protections against abuse that are afforded by the common law.

But, why create a two-tier system, where some workers remain subject to labour laws and others not? Why not simply allow freedom of contract between all employers and all employees? Because neither the government nor the unions would agree to this. Most countries have, to a lesser or greater extent, sacrificed contractual freedom in labour markets in favour of job security. SA has embraced the developed world trend and appears unlikely, in the near future, to make any fundamental changes to its laws.

The solution that is offered here is one that will disturb the existing labour dispensation as little as possible, yet allow a massive number of extra real jobs to be created. Its implementation would rapidly defuse the ticking unemployment bomb. It would radically reduce the number of men and women forced into resorting to crime or the shame of prostitution out of desperation as the only means of maintaining themselves and their children. If the 6 million jobless were each earning R1,000 per month, they would annually take home R72 billion to support their families. Low paid jobs with long hours might not be regarded by many as “decent” work but surely it would be better than what SA’s jobless have to do merely to stay alive. Once they have their feet on the employment ladder they can demonstrate their abilities and steadily increase their take home pay.

The fundamental solution to the problem is to increase the demand for labour in the private sector, especially in small and medium size firms (SMEs). Two-thirds of all jobs in the EU, and almost 50% in the US, are in SMEs that have fewer than 250 employees. If we use the same classification of small firms as the EU, employment in SA’s SME sector is more than 50%.

But, why is the labour market not growing? Why are employers not hiring our six million unemployed job seekers? Why? Because they estimate that the total cost of employing the unemployed, including labour law compliance costs, is greater than the value of their productive work. Under SA labour law today, the risk of employing long-term unemployed people includes the possibility of having to face the CCMA or labour court over termination disputes, should they prove to be totally unsuitable for the job. Long-term unemployment generally involves low skills (if any), poor work habits, potential discipline problems, and no track record – not an attractive prospect for any would-be employer. The potential disruptive risk is just too great for the average small employer or householder to take. Small employers do not have human resources departments to deal with the complexities of the labour laws. They respond to the hazards of falling foul of our labour laws by refraining from taking on risky new recruits – those six million people who desperately need jobs.

If government would give the long-term jobless the power to entirely eliminate the risk by exempting them from the problematic laws that deter employers from employing them, their lives would improve significantly.

Government’s compassion for the unemployed is misdirected when it sets excessively high employment standards for employers. Millions of people are rendered unemployed and unemployable, especially if they are unskilled, old, young, without work experience, or have no recent employment records.

Government has to defuse this ticking time bomb of unemployment before it explodes. Give the long-term unemployed exemption certificates that provide them with the power to conclude contracts with employers on any terms they find acceptable. Instead of people rioting and waving banners that reflect unhappiness, millions of unemployed people could be fanning out across the country, happily waving exemption certificates, eager to work and regain their self-respect. Allow potential employers to employ without fear and the six million will certainly have a much greater chance of getting a job than they have now.

Author: Eustace Davie is a director of the Free Market Foundation. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author's and are not necessarily shared by the members of the Foundation.

FMF Feature Article / 04 May 2010