Well-intended labour bills may kill jobs

I would like to congratulate Cosatu for its unrelenting efforts to improve the lives of the employed. The proposed amendments to the labour bills currently being discussed by Parliament will certainly do that, if passed, by increasing the security and quality of work offered to employees.

But what I would like to ask is: what about the 4.4 million people who are trying to find jobs and cannot?

According to Statistics SA, this is the number of people who were of legal working age actively seeking employment between July and September 2011, and yet remained unemployed.

To put that into perspective, it is equivalent to the population of Cape Town needing to be supported by something – grants, family members, opportunistic earnings or crime – in order to get by.

The amendment bills for the Labour Relations Act and the Basic Conditions of Employment Act mostly address dealing with unrestricted strike action and increasing the speed and effectiveness of mediation; something that will be appreciated by all during the notorious autumn strike weeks. However, the most contentious point is the proposal to reduce the term of temporary employment to six months. Thereafter, any employee who has been employed for six months or more is entitled to full benefits.

The motivation behind this amendment is commendable and justified: to prevent workers from being employed constantly on a temporary basis and therefore never receiving the protection due to them from companies. But is the timing right?

The advertised theory is that now firms will employ more workers on a permanent basis, benefits will be spread across society and inequality will decrease. This may hold true in a country that has low employment and highly skilled labour as firms will have no choice but to stick with the workers they have. In South Africa, however, the exact opposite is likely to happen.

The types of workers employed on a temporary basis or through labour brokers are generally low-skilled and hence the firm has no incentive to keep them in positions for long periods of time.

They are therefore easily replaceable by machinery or other unemployed jobseekers. The final result of this well-intended amendment, therefore, is not to have firms suddenly embrace workers on a permanent basis, but rather to make employing these workers far more expensive.

As labour becomes more expensive and cumbersome to manage, other forms of operations become relatively cheaper.

Firms will start to move their operations to other countries, replace repetitive jobs with machines, move towards production of less labour-intensive goods and decrease production. All of which will swell the 4.4 million-strong unemployed.

On paper there is nothing wrong with the new amendments to the labour acts, but a cricket bat swung too early simply leaves the wickets open. If Cosatu and other proponents of stricter labour law changes are to tackle the issue of unemployment they need to take into account the context in which they are doing so, and South Africa is not ready for such laws.

Yes, companies need to be kept in check and just because there is high unemployment doesn’t mean they should be praised for anything that creates jobs. But the consequences of policy changes need to be carefully thought through such that they don’t give these very companies incentives to lower their employment levels.

 * Pierre Heistein is the convener for UCT’s Applied Economics for Smart Decision-Making course.