Thought Leadership

We have to review labour regulation to stem jobs bloodbath

31/08/2021 | By Busiswe Mavuso

Creating an investor -friendly environment to boost growth by pushing ahead with economic reforms is going to be key to stemming South Africa’s jobs bloodbath. With official unemployment reaching 34.4% – the highest of the 80 industrial nations tracked by Bloomberg – dealing with our rising joblessness against the backdrop of the Covid-19 pandemic is a national emergency. Our labour policies are simply not designed to produce jobs aligned to the workforce we actually have.

The data from Statistics SA point to a desperate need to concentrate all our energies on growth enhancing economic reforms if we are to put a lid on the crisis, particular with women and youth unemployment.

We’ve often focused on the big-ticket reforms in energy and communications, to name just a few, that will over the medium to longer term put the economy on higher growth trajectory. Just as important is to review labour regulations introduced over the past two decades that have on one hand protected the rights of employees but have also made it more expensive and harder for small businesses in particular to hire new workers. There can be no denying that this has been negative for job creation.

Changing some labour regulations will have the effect of curbing retrenchments and changing the mindset in favour of creating new jobs, especially if the other big-ticket reforms are undertaken. We do need to relook at the overall system so we can have a more flexible labour market. At the very least, we should consider full or partial exemptions for small businesses from certain kinds of labour regulation, such as the extension of bargaining council agreements. Small, not big business is the engine of job creation.

The small business sector employs the bulk of South African workers and has been facing extreme pressure over the past 18 months from the Covid-19 lockdowns. According to statistics from the Small Enterprise Development Agency, of all jobs lost in the economy up to the third quarter of last year, 90% were lost within the small business sector. With third-quarter jobless numbers expected to rise even further because of the July unrest, we must look at reducing what has been long singled as a fundamental flaw in our economic model: our rigid labour regulations that have affected small businesses more acutely.

Former Finance Minister Tito Mboweni earlier this year called on us to look at the country’s labour policies and find out to what extent they are placing binding constraints on small and medium enterprises to function effectively. The Organisation for Economic Co-operation and Development has called for an employment policy incentivising job creation to help regain the more than million job losses since the beginning of the Covid-19 that have disproportionally affected low-skilled workers.

We’ve long banged the drum for deep reforms in our economy; that is because without a strong commitment to them and the necessary hard policy decisions that follow, we are likely to once again prove a laggard in attracting investment as the recovery in the global economy continues to gathers pace.

With regards to our vaccination efforts, the past couple of months have been encouraging with more than 15% of the population having received at least one dose. With all adults able to now get inoculated , we need to push forward with the programme and aim to get to the targeted 67% coverage as soon as possible to escape yo-yoing between various lockdown levels.

While the global economic recovery and high commodity prices have been supportive of South African growth this year and eased fiscal pressures that at one stage had us considering a tax increase, we have to do our own bidding by ensuring a successful vaccination programme. We can’t rely on external factors for a sustainable recovery and to solve a growing unemployment crisis that weighs heavily on our fiscal strength. There’s little to no room to widen the social net at this point, as it would mean an increase in public debt from already very high levels that would trigger a loss of confidence.

Our only escape from an unemployment crisis, and an underperforming economy is through structural reform – and reform of the labour market forms an essential component of that.

This column is by Busi Mavuso and first appeared in Business Day. 

For related posts, click here.