Fixing our 30-year labour crisis

Cape Town. 100219. South Africa is coming out of its first recession in almost two decades reasonably rapidly, says Reserve Bank Governor Gill Marcus. Marcus also said monetary policy remains directed towards containing inflation. The central bank has cut rates by 500 basis points since December 2008, and left the repo rate flat at 7,0% at its last four meetings. Picture Mxolisi Madela

Cape Town. 100219. South Africa is coming out of its first recession in almost two decades reasonably rapidly, says Reserve Bank Governor Gill Marcus. Marcus also said monetary policy remains directed towards containing inflation. The central bank has cut rates by 500 basis points since December 2008, and left the repo rate flat at 7,0% at its last four meetings. Picture Mxolisi Madela

Published Aug 5, 2013

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Reducing unemployment on a sustainable basis is arguably the single most important economic objective at present, says Reserve Bank Governor Gill Marcus.

Johannesburg - Creating an inclusive society requires courage, foresight and the ability to make tough choices.

Reducing unemployment on a sustainable basis is arguably the single most important economic objective at present. In part, creating jobs is about raising the level of economic growth. However, it is also about addressing the structural factors that limit employment growth.

The number of young people who are unemployed, and the length of time they had no jobs, are rising. South Africa has had an unemployment crisis for nearly three decades.

Labour market reforms that move workers from one sector to another are necessary because they help economies. They are also controversial because of job security.

Policies such as unemployment insurance, training vouchers and placement assistance can help workers without jobs find alternative opportunities. Policies that limit the ability to downsize or restructure are seen as inefficient and are being adjusted.

Structural reforms aimed at economic efficiency are needed to raise the job level. These policies include tougher anti-competition policies and microeconomic reforms aimed at lowering costs in key network industries.

Education, training and the retraining of workers are essential. After declining for decades, many advanced economies are spending more on education and training, despite significant pressure to reduce public spending.

South Africa’s high level of unemployment is not new.

While we cannot simply blame our past, we also cannot wipe away its terrible and enduring legacy.

The deep structural features of apartheid – poor quality education for black people, job reservation, curbs on trading and owning businesses, forced removals, land dispossession, dormitory townships and the homeland system – have all contributed to the situation where we have one of the highest levels of inequality in the world and over a third of adults out of work.

Since 1994, we have made steady progress, but clearly the rate of job creation has been too low. Sound macro-economic performance combined with higher growth has contributed to rising employment since 1995. The problem has been that the increase in the labour force has outpaced the number of jobs.

The rate at which an economy grows is critical. While we all recognise that jobs are not automatically created, we do know that if a country is not growing then it is extremely difficult to create new jobs, or even sustain existing ones.

 

We must frankly assess our long-term growth average, and current growth rates, as while we are creating new jobs, they are not sufficient, and therefore unemployment continues to rise.

One of the most controversial aspects of our policies has been the labour regime and the institutional structure of the labour market.

The labour regime has sound intentions. It aims to balance the power of employers and employees following a history where black workers in particular were exploited and subjected to arbitrary dismissal.

The labour regime set up complex quasi-legal dispute resolution mechanisms.

Policy has also sought to broaden access to unemployment insurance, health insurance, workmen’s compensation, maternity leave as well as training opportunities with sectoral education and training authorities.

After the enactment of the Labour Relations Act, the number of days lost to strike action fell sharply with about one million strike days a year on average from 1996 to 2007.

Since 2007, however, the number of strike days has risen sharply and strikes have become more violent. More recently, there has been a sharp increase in illegal or unprocedural strikes. Today, many sectors have high levels of tension which are not conducive to investment, job security or employment creation.

In other respects too, the labour regime has not lived up to expectations. We have not seen the dynamic growth of small and medium-sized firms as one would have expected. While collective bargaining has helped, it has also favoured big firms rather than smaller ones. New labour entrants also find it difficult to break into the labour market.

While South Africa has made praiseworthy progress in early childhood education, school and further education and training and university education, the quality remains below global averages.

Education provides the single most-effective route to breaking the inter-generational cycle of poverty. Lack of education is also the greatest exclusion a person can experience.

It is also critical to obtaining a job and higher productivity. Given that the economy is short of skills, importing skilled workers can be a sensible strategy because of the multiplier effects for low-skilled employment.

It is estimated that for each high-skilled immigrant that comes into the country, between four and eight low-skilled jobs are created.

South Africa is faced with a difficult set of trade-offs. In general, countries get rich by moving up the value chain, by becoming more skills-intensive. South Africa lacks the skills to compete with advanced economies such as Germany and the US.

On the other hand, our cost structure does not allow us to compete with poorer economies. So South Africa has to adopt a dual strategy of promoting growth in advanced sectors that can compete globally while also creating jobs in lower productivity sectors.

Both legs of this strategy should focus on the need to raise exports in general which is the only realistic strategy to address our inequality problem on a sustainable basis. While mining will remain critical to our development prospects, the economy has to diversify to be able to create more jobs going forward.

South Africa and the world face difficult challenges in reviving economic growth and creating jobs. Sensible counter- cyclical policies combined with longer term structural reforms aimed at promoting growth, employment and a more equitable distribution of incomes are the way to navigate out of this crisis.

For South Africa, there is also a need to improve the functioning of the labour market, to strengthen its institutions and to walk that careful balance between hard-won rights of workers and the need to promote inclusive growth through encouraging new entrants into the workplace.

 

* Marcus is the governor of the Reserve Bank. This is an edited extract from her speech at the 26th Annual Labour Law Conference in Johannesburg last week.

** The views expressed here are not necessarily those of Independent Newspapers.

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