Urgent need for labour law reforms to combat rising unemployment in South Africa - Daily Maverick

Anthea Jeffery

Job creation on the scale required in South Africa cannot be achieved under current damaging labour laws. These laws might protect those already in the labour market, but they make it very difficult for the unemployed to find work and start climbing the jobs ladder.

South Africa’s unemployment rate has risen from 20% in 1994 to 33.5% in June 2024. By contrast, the equivalent rates in four other BRICS countries in 2023 were 7.7% in Brazil, 3% in Russia, 7.1% in India, and 5% in China.

Joblessness here is also far worse than in other African countries, including Ghana (with a 3.9% rate in 2023), Kenya (4.9%), Nigeria (4.1%) and Tanzania (8.9%).  

Among black South Africans, the unemployment rate stands at 37.6%. Joblessness among young people aged 15 to 24 is higher still, coming in at 60.8% on the official definition and at a shocking 70.6% on the expanded one (which includes discouraged workers not actively seeking jobs).

As unemployment has risen, people have become increasingly desperate for work. In 2017, for instance, the Johannesburg Metropolitan Police Department advertised 1,500 new posts and received what it described as a “staggering” 65,000 applications — a telling testament to the “vast” unemployment rate in the city.

In June 2023 Gauteng Premier Panyaza Lesufi advertised 8,000 job vacancies and received an even more extraordinary 1.2 million applications.

Overcoming South Africa’s unemployment crisis is a political and economic imperative. It is also a moral one. That 8.4 million people are jobless on the official definition – and another four million are also without work on the expanded definition – is a human tragedy.

However, job creation on the scale required cannot be achieved under current damaging labour laws. These laws might protect those already in the labour market, but they make it very difficult for the unemployed to find work and start climbing the jobs ladder.

Take, for instance, the National Minimum Wage Act of 2018. The national minimum wage was initially set at R20 an hour or roughly R3,700 a month. At the start, lower amounts were permitted for farm workers (R18 an hour), domestic workers (R15 an hour), and people provided with “temporary employment opportunities” (R11 an hour) under the Expanded Public Works Programme.

By March 2024, however, the special dispensation for farm and domestic workers had ended and the national minimum wage had been increased to R27.58 an hour or R4,400 a month. Only those working temporarily for the state on the Expanded Public Works Programme still receive considerably less, at R15.16 an hour.

The 2024 increase in the national minimum wage amounted to 8.5%, well above a 6% inflation rate in 2023. In addition, the national minimum wage was again set at a rate unusually close to the median wage. The median wage is the midpoint wage at which half of all employees and would-be workers earn more, while half earn less.

Realistic balance
A realistic balance must be maintained between the median wage and the stipulated national minimum wage, as wages below the national minimum wage are generally illegal. Most countries with a minimum wage set it at between 7% and 55% of the median. The US has been debating whether to raise its national minimum wage from about 25% of the median wage to 50%, which could result in significant job losses. In South Africa, however, the 2023 national minimum wage already amounted to 76% of the median wage.

Employers paying less than the national minimum wage are in breach of the law, unless they can obtain exemption under a complex process. The country’s high national minimum wage also prices the poorly skilled out of the labour market, as the government is well aware. President Cyril Ramaphosa has acknowledged that businesses incur “a loss” in hiring such individuals and are reluctant to take them on. The national minimum wage thus helps explain the enormity of the youth unemployment crisis.

No less damaging are rules regarding dismissals. Under the Labour Relations Act of 1995, all dismissals – no matter how merited they might be – are automatically deemed to be unfair unless employers can prove they were carried out for fair reasons and following fair procedures.

Given this reversal of the normal onus of proof, dismissed employees can easily lodge claims for reinstatement and/or damages against their former employers. These claims are mediated or arbitrated by the Commission for Conciliation, Mediation, and Arbitration, established under the Labour Relations Act. Employers are thus constantly at risk of being brought before the commission on grounds that may be spurious but nevertheless take significant time, effort, and money to refute.  

The Commission currently handles close on 100,000 dismissals every year. The decisions made by its arbitrators are often flawed, but cannot easily be set aside on review.

As law firm Cliffe Dekker Hofmeyr explains, the test is not whether “the arbitrator came to an incorrect decision”. Rather, the test is whether the arbitrator’s decision is one that “no reasonable decision maker could reach” on the available material. This is more difficult to show.

Major reforms
The economy cannot generate millions of jobs without major reforms to these laws. As regards the national minimum wage, many unemployed people would prefer to work for less than the stipulated amount than to have no income at all, but the statute makes their preferences irrelevant. The Government of National Unity (GNU) should therefore repeal the National Minimum Wage Act.

At the very least, wide-ranging exemptions should be introduced as interim steps towards repeal. All employers with fewer than 500 employees should be exempted from the national minimum wage, for instance, as should all those operating in investor-friendly special economic zones.

The unemployed should be allowed to opt out of national minimum wage protection while they build up workplace skills. In addition, private sector employers should be allowed to take a leaf out of the government’s book and pay employees at the same hourly rate (R15.16) as the Expanded Public Works Programme permits.

Onerous rules regarding dismissals must also be reformed. Employers will hesitate to employ people – especially new entrants with no work record – unless they can dismiss them should this prove necessary.

The reverse onus that presumes all dismissals to be unfair should be removed. Instead, the country should revert to common-law rules providing for the termination of employment under agreed notice periods in employment contracts.

The GNU is currently well positioned to implement these reforms. A recent opinion poll conducted for the Social Research Foundation shows significantly increased voter support for both the ANC and the DA, the two biggest partners in the GNU.

Some 61% of respondents in the foundation’s poll think the ANC is doing good work, while about 67% say the same of the DA. Close on 60% expect the GNU to succeed. However, their support for it will diminish over time if it does not succeed in bringing down the unemployment rate — long voters’ chief concern.

Many in the ANC alliance will resist these reforms, but comparative employment figures underscore the need for urgent action. As the Social Research Foundation notes, “during the years of (former presidents Thabo) Mbeki and (Nelson) Mandela, South Africa created between 400,000 and 500,000 net new jobs annually. Under Ramaphosa, this figure is just over 50,000.”

The GNU has successfully rekindled potential investor interest in South Africa, but this is only the first step. However, if it now proceeds with vital labour law reforms, it will increase business confidence and encourage more fixed investment. That in turn will pave the way to higher growth, more jobs, and rising prosperity — and still stronger support for the GNU. DM

Dr Anthea Jeffery is Head of Policy Research at the Institute of Race Relations, and author of the recently published paper on ‘Generating Jobs and Skills for Growth and Prosperity’, part of the IRR’s Blueprint for Growth series

https://www.dailymaverick.co.za/opinionista/2024-10-31-urgent-need-for-labour-law-reforms-to-combat-rising-unemployment-in-south-africa/