South Africa’s Labour Laws in an International Context

South Africa’s labour market competitiveness is lagging behind the developing world. The World Economic Forum ranks South Africa as the 7th-worst country out of 139 countries in the world in terms of its labour laws and regulations. This has created two significant problems for the country: the highest unemployment rate in the world (because labour laws and regulations do not promote job creation) and low rates of economic growth (because South Africa’s labour force is unproductive in comparison with its peers, the rest of the developing world).

Two sets of laws are particularly problematic. Firstly, collective bargaining (i.e. the legal process by which business, trade unions and government agree on wage escalations, as opposed to market forces) has caused wage escalations to exceed labour productivity growth over the past 15 years. Secondly, dismissal protections (i.e. legal protections afforded to employees that protect them from dismissal despite performing poorly on the job) have caused labour productivity, on average, to be very low. In order to boost employment and raise economic growth rates, South Africa requires changes to labour laws and regulations that would promote high labour productivity and a concrete, market-based link between productivity and remuneration.

The labour market in South Africa is politically sensitive for many historical reasons. The system of apartheid started as a government policy to exclude blacks from the labour force, so apartheid was, in its essential form, a highly restrictive labour policy. Liberalising the labour market is viewed with great suspicion, especially by black trade unions, which fear that liberalising reforms will revive the apartheid labour system. But the apartheid labour system was not a free market system by any measure. In fact, South Africa has not had a relatively free labour market since the 1890s.

AUTHOR Loane Sharp is a labour economist and analyst at Adcorp Holdings Limited. This article is an excerpt from the book Jobs Jobs Jobs published by the Free Market Foundation and may be published 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 Policy Bulletin / 27 March 2012