“Won’t freeing up the labour market, as proposed by the IRR, lead to increased exploitation of workers and undermine efforts to address inequality?” This question was posed to me by a journalist recently, reiterating one of the most enduring questions in South Africa’s political economy.
Stringent labour regulation – the protection of “workers’ rights” – was a priority of the ANC when it took power in 1994. There was a strong appeal to political morality here. From the outset, there was a strident rejection of any suggestion of countenancing the “exploitation” of South Africa’s workers. Quite the contrary: the unstated assumption has invariably been that the state would apply increasing pressure on employers to compel better working conditions and pay higher wages.
Employment would incrementally become better-paid, more fulfilling and ever more secure. This has been variously described as “quality jobs for all” and “decent work”. The introduction of a national minimum wage in 2019 and (within the state’s own ideological frame of reference) the revised regulations introduced last year via the Employment Equity Act are recent moves in this direction.
Competitiveness, meanwhile, would be attained (and maintained) through enhanced productivity. This would be achieved through continuous upskilling of the workforce – what Tito Mboweni as Minister of Labour described as the “skills revolution” – and subsequently through a raft of interventions intended to at least offset the effects of labour costs and other ideological non-negotiables. This was the so-called developmental agenda.
The outcomes, however, told a contrary story. Between 2001 and 2025, the number of South Africans without work rose from 4.1 million to 8.4 million – the unemployment rate having climbed from 24.6% to 33.2% on the official definition over that period. Add in those who had given up looking for work (the “expanded” definition of unemployment), and the rate increased from 34.6% to 42.9%.
The hard reality is that South Africa has not made a credible case as an environment for doing business, and with it for employing people.
Costs of employment
Labour policy pushed up the costs of employment, while a faltering education and training regime failed to develop the highly skilled, high-productivity workforce that had been envisaged. The outcome was that companies – wary of its effect on their balance sheets in a tough environment – were reluctant to hire. This was especially so for smaller businesses. The effect on the workforce was felt particularly severely among the country’s unskilled, precisely those who were most excluded from the economic mainstream.
How this has worked in practice is demonstrated by the impact of the National Minimum Wage (NMW).
The National Minimum Wage Commission admitted last year that the research body it relied on for its modelling, the Development Policy Research Unit at the University of Cape Town, had found that the NMW had had a “statistically significant” impact on employment. As the Commission had been coy about the exact numbers, IRR Legal approached the DPRU directly.
According to DPRU’s analysis, in 2024, some 227 800 jobs were lost as a consequence of the NMW, equivalent to some 3.4% of the 6.7 million “low-wage” jobs in the country. They added that since 2019, between 4.8% and 8.1% of low-wage workers had lost their jobs since 2019. This meant that between some 322 000 and 543 000 people, with a midpoint estimate of 430 000, had been rendered unemployed by this policy in total.
These tended to be among the most vulnerable in the formal workforce, with neither savings to fall back on, nor marketable skills to offer new employers.
Whether or not the NMW (and for that matter, the labour regime as a whole) has prevented exploitation is debateable; but it’s abundantly clear that it has contributed to exclusion.
The worst exclusion in South Africa at present is exclusion from economic participation through unemployment. It’s the exclusion from the economy altogether. There is an old joke about how the only thing worse than being exploited by a capitalist is not being exploited by a capitalist.
Greater leverage
Nothing gives a rapacious employer greater leverage over his or her workforce than a lack of options on their part. “Exploitation” is best dealt with by an expanding economy and the capacity of those within it to take advantage of it. The solution to the abuses of an economy is not necessarily regulation, but growth.
So, what should be done?
Well, there is a lot to South Africa’s labour relations regime, not all of which can or should be dealt with in the same way. Given its impact, it’s not difficult to argue for the abolition of the NMW. By contrast, health and safety protections are eminently reasonable and justifiable.
But the imperative must be to get people into work, however imperfect it may be. There is no doubt that some of the work that a growing economy would provide would be low-wage and not particularly attractive – though it’s equally a hard reality that the failure of our education and training system means that low-wage, low-skilled work is one of the few avenues available to millions of aspirant work seekers, and is at least an initial step towards some socio-economic mobility.
Countries like Vietnam (and China, a country that inspires great affection on the part of many in South Africa’s elite, though too often with scant understanding of its actual history) started their upward movement with just this sort of work. Long hours at indifferent wages in a factory were, however, a step up from back-stooping exertions in a rice paddy, and within a generation, there were opportunities for better-skilled, better-paying employment.
There’s an aphorism that societies have to work with the workforces they have, rather than the workforces they want. South Africa’s approach might be workable for a high-growth economy, and a highly skilled workforce; for its extant realities, it has been a disaster and is overdue for reform.
From a bird’s-eye perspective, the imperative must be to reduce the costs to firms, direct and administrative, of taking on employees.
This means that some elements of the system – including the extension of bargaining council agreements to non-parties and the NMW – must be scrapped. Rather, determining wages should be a matter between employers and prospective employees. If doing so in toto is not politically feasible, smaller firms should at a minimum be exempted.
No shortage of takers
This, incidentally, would follow a precedent set by the state itself, since under its Expanded Public Works Programme (EPWP), it has provided millions of people with short-term “work opportunities” for which it pays a stipend of some R110 a day. This is way below the NMW generally required. There is no shortage of takers.
Laws currently governing strikes should also be reformed. Mandatory and secret strike ballots must be introduced, along with effective sanctions against unions which incite or perpetrate violence during stoppages. Too often, political sensitives have allowed individual workers, leaders and unions to shrug off the consequences of lawlessness, even where it has turned lethal. This amounts to a form of extortion not dissimilar in concept from the various “mafias” that have wrought such havoc on the economy.
Rules dealing with dismissals and retrenchment must also be reformed. Greater flexibility in the hiring and firing process is essential to job creation, as business needs to be able to adjust to highs and lows in demand. Dismissals are the invariable reverse side to hiring. The presumption that dismissals are unfair unless the employer can prove otherwise should be removed. Instead, employers should be free to dismiss workers under the agreed notice periods included in their employment contracts.
While all this is necessary, it is only a partial solution. Going forward, a much enhanced and more effective skills pipeline will be essential. South Africa does not have the weight of population or ready money, or the advantage of location alongside its major trading partner and the competitiveness, and productivity and innovation capacity this would add to its future offering.
This in itself will necessitate an examination of the institutions put in place to drive skills development (the Sector Education and Training Authorities, which have themselves come in for severe criticism), and also the management of the entire education ecosystem.
Imperative
More than that, dealing with unemployment will need a reconfiguration of the investment environment as a whole. Labour market reform is an imperative, though only part of a much more thorough-going economic overhaul.
South Africa needs to become an attractive place to do business. Investment conferences, subsidies and “vibes” cannot replace an environment with a good return on investment.
At the moment, South Africa fails to make that case: unstable infrastructure, decaying cities, chronic insecurity, an inadequately skilled workforce, an often incapacitated state, along with demands for empowerment set-asides and relatively high labour costs. Ultimately, South Africa needs to fix all these things; but this must begin somewhere, and the obvious place is with those things that have been legislated and officially regulated.
The nature of labour legislation and the burdens it places on the economy are issues that need to be faced. Inasmuch as the existing labour environment was introduced as a matter of morality, the imperative of its reform is taking on much the same character.
*This article draws on the IRR’s recent Blueprint for Growth paper, Arming SA’s Pro-Growth Forces, available on the IRR’s website: https://irr.org.za/reports/the-irrs-blueprint-for-growth/the-irrs-blueprint-for-growth-2026/1_the-irrs-blueprint-for-growth-1-arming-sas-pro-growth-forces
[Image: Visual Karsa on Unsplash]
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