Strikes by the employed will not help the unemployed

The series of planned strikes by the labour unions, which are intended to focus attention on job-creation, are likely to hurt the jobless rather than help them. What the jobless need most is a strong, growing, and thriving business sector, demanding increasing numbers of employees to sustain its growth. Uncertainty and chaos, brought about by strikes dampens business confidence and retards investment and growth, reducing the demand for labour.

Strikes are generally aimed at persuading firms or groups of firms to change their behaviour towards their employees. The purpose is to bring about increased wages or improved working conditions. These strikes are different. They appear to be intended to place the blame for unemployment on the government and persuade it to change its macroeconomic policies.

Mass unemployment always results when the cost of employing people is raised above economically justifiable levels. Competition to employ the young and old, unskilled and otherwise handicapped is reduced by high compliance costs that drive the price of employing such workers – people whom small firms generally employ. As the costs of complying with labour laws have been shown to average as much as 60 per cent more for small firms than for large firms, both small firms and the jobless face formidable deterrents to contracting with each other.

Cosatu is critical of the prudent monetary and fiscal policies that have characterised ANC governance since 1994, yet it is precisely that prudence that has turned the South African economy around. Inflation and deficit financing by the apartheid government had caused the economy to shrink by an average of 1 per cent per annum for twenty years. It would be most unwise for the ANC government to destroy its hard-fought gains by following similar profligate policies to those pursued by its predecessor.

Our latest Economic Freedom of the World report places South Africa joint 38th with France, Greece, Jamaica and Peru on the list of economically free countries, up from 50th since 1994. Countries with high economic freedom rankings provide their countries with significant benefits, including higher per capita incomes, higher growth rates, lower levels of unemployment, higher relative incomes for the poorest members of the population, and greater levels of human development as measured by the United Nations. If SA is able to maintain and improve the country’s economic freedom level, the benefits will become increasingly apparent. Already we can see the signs of vibrant economic activity and people’s lives are improving rapidly as a result. Of course we would all like this to happen even more quickly, but our impatience should not lead us to destroy the gains SA has made in the last decade.

The 2005 report contains a study by Erik Gartzke, which shows that economic freedom is more important than democracy in preventing conflict between nations. Countries that trade freely are much less likely to go to war with each other than those that elect political leaders who impose regressive economic and trade policies. More importantly for South Africa, which does not appear to face any threat of war, free trade gives SA consumers access to the best and lowest cost goods available worldwide.

SA’s free trade policies are being blamed for causing job losses, especially in the apparel manufacturing industries. What is often forgotten are the huge benefits accruing to the poorest members of society, many of whom are jobless, from being able to buy low cost clothing imported from China. Is government expected to deprive millions of poor people of access to affordable clothing in order to provide our clothing manufacturers with an easier life? Our manufactures should be looking to develop niche markets not served by the Chinese, to overcome their lack of competitiveness, instead of insisting on protection at the expense of the poor.

If the labour market were to be opened up to the unemployed tomorrow by removal of the labour laws that create the most serious barriers to entry, the move will have a depressing effect on wages. That is what the unions are determined to prevent. However, within a relatively short time, accelerated economic activity would absorb the available labour, wages would once again increase and surpass their previous levels and employers will start complaining about a shortage of labour. This is what happened when the boat people flooded into Hong Kong in the middle of the 20th century.

As matters stand, the government lacks the political will to make sweeping changes to the labour laws and the unions do not want them. The Jobs for the Jobless booklet published by the Free Market Foundation offers an alternative that leaves the existing labour laws in place, does not tamper with the job security of people who are already employed, but creates a place in the market for the unemployed. The booklet proposes that anyone that has been unemployed for six months or more should be given an exemption certificate that exempts the holder from the labour laws for a period of two years. It suggests that an employment contract should be obligatory to ensure that there is clarity on the basis of the agreement. Exempting the unemployed from the labour laws as proposed should lead to the creation of new jobs and not affect those who already have jobs. The most likely employers of certificate holders would be the small firms and individuals who are not employing because of the labour law compliance costs.

One of the great advantages of the proposal is that it lends itself to empirical testing in a pilot project. Unemployed people living in an area such as Soweto could be given exemption certificates and their experience tracked to discover whether it assists them to secure jobs. More particularly, it will allow the fears of the labour unions to be allayed, showing that many new jobs can be created in the private sector without threatening the jobs of current employees or putting downward pressure on their wages.

Author: Temba Nolutshungu 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 Free Market Foundation.

FMF Feature Article/ 11 October 2005