One of the constant goals put forward in State of the Nation Addresses has been greater job creation. Last week President Cyril Ramaphosa said one of the overriding priorities for 2021 was to ‘implement economic reforms to create sustainable jobs’.
With the phased reopening of the economy, he said, ‘we expect to see a strong recovery in employment’.
He did not give details on the reforms needed to achieve the jobs growth. But a big question hangs over whether there will be a strong recovery in employment.
The rise in minimum wages on 1 March, despite the growth recovery, will amount to a laboratory experiment on whether there will be job creation or job destruction. In agriculture and domestic work, the forthcoming rises in the minimum wages are double-digit and way above inflation. As these will be imposed on an economy that is still under stress, the question might be on the number of likely job losses.
As part of the Covid-19 stimulus package, the state intends to spend R100 billion on job creation over the next few years. So far, the President says, 430 000 jobs have been created, and 180,000 are in the pipeline.
The reliance of these jobs on stretched government finances does not make them sustainable. Ramaphosa fully recognises that it is the private sector that must create sustainable jobs, but says nothing about reforming South Africa’s job-destroying policy environment.
During the second quarter, when the country underwent the most severe period of the lockdown, about 2.2 million jobs were lost. With the easing of restrictions, 600 000 jobs were created in the third quarter. But in the third quarter of last year, the latest period for which employment data is available, South Africa was still left with an unemployment rate of 30.8 percent (or 43 percent on the expanded definition, which includes discouraged job-seekers).
Rigid labour laws
South Africa has a structural unemployment problem, due to extremely rigid labour laws and feeble economic growth since 1994. That has meant that, except for the six years up to 2007, job creation has been insufficient to absorb new entrants into the labour force.
For the unskilled it is likely to be very difficult to find or keep a job in the new harsher environment, despite the recovery.
From 1 March, the new national minimum wage has been set at R21.69 per hour, a 4.5 percent rise from the 2020 level. That is above the inflation rate of 3.3 percent.
The real job destroyer will be the rise in the minimum wage for farm workers of 16 percent to bring about parity with the R21.69-per-hour national minimum wage. The minimum wage for domestic workers is to be increased to 88 percent of the national minimum wage, R19.08, in March, amounting to a rise of 22 percent. Next year there will be further rises, as the rate for domestic work will be the same as the national minimum wage.
The tragedy is that these double digit hikes in minimum wages mean that jobs will be under extreme pressure in two sectors that are the largest sources of employment: domestic work and agriculture.
Domestic work accounts for about six percent of total employment in the country. The sector mostly employs women, many of whom support single-parent households. Like the rest of South Africa, employers of domestic workers have also found themselves under financial stress over the past year. In many cases those who cannot pay the minimum wage will have to either lay off their employees or cut hours.
Bodies representing the agricultural sector have warned that the rise in the minimum wage will force farmers into mechanising the labour-intensive parts of their operations. There have been major advances in automation in agriculture in recent years. Sacrificing many of the 900 000 employed in South African agriculture as a result of the double-digit rise in minimum wages has to result in a rise in poverty.
The minority recommendations put forward by business representatives in the report of the National Wage Commission pointed out that big shocks in the upward movement of legislated wages cause extensive job losses in agriculture. Business supported the need for increases in minimum wages, but in a phased and sustainable way.
Unions celebrated the rises in minimum wages as a contribution to the economic stimulus.
For all the show of altruism by unions and government, and talk of defending workers, high minimum wages are more about protecting the interests of organised labour than anything else. High minimum wages eliminate competition from lower-wage labour. Despite being a high labour surplus country, South Africa is now a high-wage and high-unemployment economy.
The Commission justified their decision to sharply raise minimum wages as one that gave priority to a more equitable pay structure to ensure people do not live in poverty, albeit at a cost to some employers. There is a denial that a rise in minimum wages leads to rises in unemployment.
The next few months will either prove this wrong or right, but will the Commission change its decision in the face of massive joblessness?
Is it right to be concerned about inequality in wage structures when vast numbers are unemployed? Might it not be better to get people into work as the overriding policy priority?
The Commission further justified the decision by saying that its findings suggested that ‘the minimum wage remains below the poverty line for many households’.
It is not clear whether child support grants and other grants might help those on minimum wages to remain above the poverty line. No detailed calculations were shown on this. Clearly, for those without access to a grant, a minimum wage job is better than no job.
The anomaly in the minimum wage regime is the wages paid by the Expanded Public Works Programme.
This allows the government to pay R11.93 per hour to those it employs on this programme. That is a little above half the national minimum wage. If this is so far below the poverty level, why then is this discrepancy not addressed?
If government is allowed to pay at this level, why can’t the private sector create jobs based on this rate?
South Africa has systems in place that are job-destroying. The first is the national minimum wage system, the second is that wages are imposed on smaller companies centrally by collective bargaining, and the third is the sheer hassle of firing in South Africa.
Minimum wages are either prescribed by government or undemocratically extended by sector bargaining councils to firms that happen to be in the same sector. That allows big firms and big unions to tell small firms what they should pay their employees, which amounts to a vicious form of anti-competitive behaviour.
The hassle of dealing with complaints by dismissed workers through the Commission for Conciliation, Mediation and Arbitration hearings also deters employers from taking on new labour.
With the ANC and labour standing together against labour reform, there can be little hope for massive job creation. This is the big sticking point of reform.
The views of the writer are not necessarily the views of the Daily Friend or the IRR
If you like what you have just read, support the Daily Friend