Give back to the unemployed their right to work
Monday, February 22, 2010

by Eustace Davie

In South Africa, the employed have been given a high level of statutory job security. But along with the introduction of minimum wage laws and other demanding employment requirements, many people have been losing their jobs and thousands more have given up hope of ever having one.

The task of rapidly reducing unemployment in SA is vitally important. People are suffering. Communities are unravelling. Violence, a symptom of deep-seated unhappiness, is escalating. Government has got to act before the situation gets seriously out of hand. Has the time not come to restore dignity to the unemployed? To give them the power to decide for themselves whether or not to work at jobs others might not regard as “decent” or to continue living with misery and
starvation? It’s their lives – they should be the ones who decide how to live them.

Most people prefer jobs where they have job security. They may even support
legislation that makes it difficult for employers to fire them. In SA, the employed have been given a high level of statutory job security. But along with the introduction of minimum wage laws and other demanding employment requirements, many people have been losing their jobs and thousands more have given up hope of ever having one. There are 5.8m unemployed people in SA. No less than 31 per cent of our total potential workforce is being affected by our ‘protective’ labour laws.

The Department of Labour and the labour unions object when economists describe SA’s
labour laws as too “inflexible” and say they are to blame for the high level of unemployment. Labour laws are “inflexible” when they bring about conditions that
prevent employers and employees from entering into voluntary and mutually acceptable
employment agreements. Labour market economics tell us that, except for voluntary
unemployment, the demand for labour should increase to absorb all that is available
as long as the value of what employees produce is more than the total cost of their employment. What SA’s mass unemployment indicates is that, given the expense of
wages, ancillary costs and compliance with costly employment procedures, potential
employers cannot find a way of making the investment of employing the currently jobless worthwhile. They are not prepared to risk hiring people they will not be
able to fire, which may cause their business to suffer and eventually fail
altogether.

And what about the ‘invisible’ consequences? Thousands more people will not get jobs because businesses that would have employed them never even get started. Professor
Charles Baird explains in his monograph Unjustifiable dismissal – the economics of
an unjust employment tax that “Some prospective entrepreneurs, seeing the litigation and liability perils of hiring, firing, laying off, promoting, demoting, deploying and re-deploying workers, may simply opt not to go into business.” In SA, potential
employers are terrified of the CCMA and Labour Court. Their terror may not be justified but nevertheless they act on their perceptions and employ no one at all or only experienced and steady workers upon whom they believe they can rely. SA’s labour laws are less inflexible than those of OECD countries such as Germany,

France and Italy, whereas the labour laws of the US, UK, New Zealand and Chile are
more flexible. Hong Kong, Singapore and Taiwan, by comparison, have total freedom of
contract in their labour markets. But, notwithstanding the potential benefits, this
article does not argue for the liberalisation of the current laws. SA’s political realities will not allow an open labour market to be developed. The high level of job security, minimum wages and other aspects of the current dispensation enjoyed by the employed are therefore accepted as a given.

Within the current dispensation, how then do we reduce unemployment without affecting the job security of existing workers? Some commentators urge government to embark on infrastructure spending to create jobs. This option has already been tried without much success. The disadvantage of government “make-work” plans is that participants do not learn saleable skills, there are too few qualified supervisors to transfer skills and ensure that the work gets done properly, and, in the end, the “solution” imposes a burden on taxpayers which destroys the private jobs that could have been created elsewhere. This “solution” is not good for the government, the
participants, the taxpayers or the economy.

An untried, potential solution exists that could provide participants with the
opportunity to gain skills and access to job opportunities, will not have a
detrimental effect on existing workers, will score huge popularity for the government, can be carried out at little or no cost to taxpayers, will reduce poverty, will restore the self-respect of participants, and will increase economic growth. Jobs for the Jobless: Special Exemption Certificates for the Unemployed, the FMF publication that recently won an international prize for ideas that can be used in addressing poverty, offers such a beneficial solution. It is proposed that every person who has been unemployed for six months or more be given, on request, an
exemption certificate that exempts them from the labour laws for a period of two years on condition that there is a written contract, stipulating the fundamental terms of employment agreed to between employee and employer.

With an exemption certificate, unemployed people will have the right to offer their
services to potential employers on a basis that totally removes the “fear-factor”. They will be able to say to potential employers, “Hire me: while you teach me and train me, you don’t have to worry about the CCMA, the Labour Court, or labour inspectors. And, if I don’t measure up, you can fire me and I’ll find work elsewhere for the rest of my exemption time”. After two years, that hapless, unskilled worker
should have gained enough knowledge and experience to enter the official job market,
or perhaps even become a valued employee of the business that took him on in the
first place.

Who would be the likely employers of the unemployed who possess the magic document that nullifies the “fear-factor”? The same people who in all countries employ high-risk candidates such as the young, inexperienced, old, sick, or long-term jobless. Owners of small firms, charities, households and other enterprises where high skills levels, experience and impressive CV’s are not necessary and employment
opportunities are offered where skills can be picked up over time while carrying out
gainful employment.

Join me in pleading with government to give the jobless a chance, to let them decide for themselves what wages and conditions of work would be acceptable. If government doubts the potential effectiveness of this proposal, let us ask that they give exemption certificates to the first 10,000 qualifying applicants and monitor the results. If it works, extend it. Government has nothing to lose but much to gain. Eustace Davie is a director of the Free Market Foundation and author of Jobs
for the Jobless.