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This resource is hosted by the Nelson Mandela Foundation, but was compiled and authored by Padraig O’Malley. It is the product of almost two decades of research and includes analyses, chronologies, historical documents, and interviews from the apartheid and post-apartheid eras.

The labour market and job creation

VISHWAS SATGAR and GWEDE MANTASHE take a critical look at the neo-liberal argument that the labour market in SA is too inflexible, and that its "rigidities" are the cause of unemployment. On the contrary, they argue, an active labour market with more effective regulations is required.

In the both the industrialised countries of the North and the so-called "industrialising" societies of the South, unemployment is a serious socio-economic challenge. Within Western economies, mainly the European OECD countries, there has been a sharp increase in long-term unemployment. Within sub-Saharan Africa there has been a persistent fall in formal employment and wages, and a general trend towards the informalisation of the economy. SA mirrors this trend, and unemployment and under-employment are ex-acerbated by the legacy of apartheid. The lack of jobs also directly relates to the continuation of poverty and inequality of the previously oppressed majority. With the election of a democratic government the objective of full employment appears to be occupying an overarching place on the policy-making agenda.

In this paper the magnitude of the unemployment problem will be defined, with a particular focus on the primary and secondary labour markets in South Africa. Within this context we shall focus on frictional and seasonal unemployment, and hence the policy solution of active labour market policies is proposed. We will not, in this paper, be taking on the larger issue of structural or long-run unemployment. In addition, the paper attempts to locate policy thinking around active labour market policies within the mainstream debate of "flexibilisation". The neo-liberal orthodoxy of deregulated labour markets is engaged with and debunked in the context of the conditions prevailing in the South African labour market.

Describing the unemployment problem

According to the Central Statistical Services there are 14.6 million economically active people in the country, of whom 8 million (56%) are employed in the formal sector, 1.6 million (11%) in the formal sector, and 4.7 million (33%) are unemployed. Although calculations of unemployment have not produced very reliable statistics, nonetheless the breakdown of unemployed in SA suggests at least 40% of the unemployed are African, 50% are women, 40% are located in rural areas (like the Eastern Cape and Mpumalanga), 22% in metropolitan areas (1 in every 5 jobless person comes from Gauteng), and over 50% are between 16 -24 years old.

Currently there have been significant job losses in certain sectors of industry. In the mining and quarrying sector, there was a decrease in the number of jobs from 725,000 in 1987 to 600,000 in 1995. In the manufacturing sector overall employment dropped from 1.5 million in 1987 to 1.41 million in [995. In the food processing sector, employment declined from 200,000 in 1990 to 175,000 in 1995. In the clothing and textile sector, employment declined from 240,000 in 1988 to 202,000 in 1995. In the construction industry there has been a decline from 450,000 in 1992 to 375,000 in 1995. In the electricity, gas and water supply sector there was a decrease in jobs from 66,000 in 1985 to 40,000 in 1995. In the transport sector there was a decline from 450,000 jobs in 1982 to 275,000 jobs in 1995 (excluding taxis and the rest of the informal sector). In the case of electricity and transport, much of the job loss took place in parastatals. More than 122,000 jobs were lost at Transnet between 1984 and 1994, and 25,000 jobs were lost at Eskom in the same period.

The debate on causes: employment versus labour standards

Since the collapse of Eastern Europe, the West has proclaimed the triumph of the market. Neo-libera] economics, advocated by most Western governments and the Bretton Woods institutions (the World Bank and the IMF), has packaged the capitalist alternative as a new orthodoxy. Its constituent elements are privatisation of state assets, liberalisation of exchange and tariff controls, export led growth, fiscal discipline, contractionary monetary policy, and deregulated labour markets.

Essentially, the explanatory basis for deregulation hinges on the analytical conclusion that increases in wages in particular, and the economic cost of labour standards in general, are the fundamental cause of unemployment. The policy conclusion emanating from this suggests the need for "flexible" labour market policies, and institutions that can bring about rapid adjustments on the supply side. In short, worker rights and labour standard "rigidities" have been removed through deregulation.

Most countries that have adopted this policy prescription have produced labour markets with decentralised bargaining trends, lower standards of dismissal protections, atypical employment categories like part-time, temporary and casual employees. Subcontracting, home industry and the restructuring of the internal labour market within most enterprises into core permanent employees and peripheral temporary employees has also emerged, with the latter having lower standards of protection. In countries of the South "flexibility" has amounted to a "race to the bottom" in terms of labour standards and protections. Export processing zones, social dumping, union bashing and the use of child labour have become prominent features.

Within the South African labour market policy debate, the World Bank has measured the correlation between wages and unemployment and has concluded that wages have indirectly contributed to unemployment. The argument made by Peter Fallon, the author of the World Bank document, suggests that wages have been the main cause for changes in factor prices and thus, to this extent, responsible for unemployment. The SA Foundation document, Growth For All, is more bold in its assertionthat increases in wages are one of the main causes of unemployment. Stemming from this is a neo-liberal policy solution which envisages a two tier labour market in which part of the formal labour market is consistently informalised through deregulation. The envisaged second tier introduces a low wage, high growth, "sweat shop" economy "free" of the rigidities of labour standards. Underlying this policy prescription is a clear attack on the labour movement in SA.

In the light of "flexibilty" and deregulation being asserted as answers to the unemployment problem, it is important to ask whether these measures, when applied, have actually created employment. Has unemployment declined because of flexibility? Numerous studies have shown that "flexible" labour market policies and institutions do not guarantee employment. Indeed, most research confirms an increase in unemployment. Nevertheless, we should still ask whether flexibility, in the specific South African context, will help. Will deregulation of the labour market deliver jobs ?

Regulation and the cost of labour

Labour market policy and institutions in SA have allowed for wage setting through collective bargaining and administrative determinations. Labour standards relating to basic working conditions, occupational health and safety, and unemployment have been regulated by a system of labour and social security laws. The neo-liberal economic argument that worker rights and labour standards are disincentives and rigidities which cause unemployment is simply not sustainable in the context of the labour market in SA. Wages, non-wage costs and legal protective standards - unfair dismissal and retrenchment laws - already display a marked flexibility to the disadvantage of workers. This is evidenced in the following areas:

Dismissal and retrenchment laws

Since the introduction of the unfair labour practice concept, the procedural and substantive standards of protection afforded to workers in dismissal situations have been ineffective. The main reason relates to the inconsistencies and patchwork nature of the case law developed by the industrial court. In other words, it has been very difficult for workers to fully understand their unfair dismissal rights.

In the context of mass dismissals for strikes, for instance, even if the strike was legal this was not a sufficient guarantee that it was fair and hence dismissals for legal strikes were acceptable in certain instances by the industrial court. In terms of retrenchment, the labour standards conferred on workers were also inadequate. Retrenchment standards essentially amounted to the right to be consulted and the right to severance pay. Over time, the former right, which actually presented workers with a fait accompli, was brought into contention within the industrial court merely on whether the decision to retrench should be made before or after consultation. The right to severance pay was also eventually taken away by the industrial court.


In the South African labour market, the neo-liberal assertion of wage inflexibility is questionable. In the first place, real wage setting through collective bargaining has happened very unevenly. The dominant form of collective bar-gaining happens at plant level, with centralised bargaining arrangements not very widespread. Formal bargaining councils - registered as industrial councils - have amounted to 86 in 1993, covering 20 000 employers and approximately 855,500 workers. Little more than 10% of SA's workforce has been covered by industrial council agreements. If the public sector and even the informal bar-gaining councils - like the mining forum - are included, as well as the fact that exemptions have also been provided for, not more than 35% of SA's workforce has gained the benefit of centralised bargaining arrangements.

In the second instance, although SA has about 3 million unionised workers, suggesting a high unionisation rate in comparison to developing countries, which stood at about 47,3% in 1992, this does not necessarily translate into huge real and nominal wage gains for all workers. This is evident if the statistics are disaggregated across sectors. For example, union density in clothing and textiles exceeds 85%, obviously suggesting a better bargaining outcome. But in chemicals and in agriculture, union densities are 43% and about 5% respectively, implying very moderate bargaining outcomes.

Thirdly, it is important to recognise that SA has one of the worst in come inequality situations in the world. A recent SALDRU survey on poverty has revealed a Gini coefficient of 0.61, which expresses itself simply as follows: "The lowest 40% of households, equivalent to 530A) of the population, account for less than 10% of total consumption; while the top 10% of- households, with only 5.8% of the population, account for over 40% of consumption". In wage terms, between 35% - 50%, of the approximately 8 million people employed, earn less than the Minimum Living Level, currently averaging R970 per month.

With this situation, it is only logical both economically and politically to argue for the need for widespread centralised bargaining arrangements in order to enable redistribution.

Statutory wage determinations

As a result of the limited reach of collective bargaining arrangements, unorganized sectors, particular within the secondary labour market, were given the protection of administrative wage determinations through the Wage Act. However, this Act excluded 1.8 Million domestic and farm workers and by 1991 only about 600,000 workers were covered. Even these determinations were not sufficiently above the minimum living level income of 8970.00. Compounding the ineffectiveness of the Wage Act has been its inability to police wage determinations and therefore compliance was not wide-spread.

Non-wage labour costs and unemployment benefits

Generally, non-wage labour costs are referred to as the social wage. These are benefits that accrue to workers for health care, unemployment, and, in some instances, transport. The costs of these benefits are normally carried by the employer, the state, or by joint employer-employee contributions. In SA health care benefits have been limited for black people, and the privatisation of health care made such care even more inaccessible. Medical aid schemes have also been financially out of the reach of most workers.

Unemployment insurance in SA operates for a finite period of six months, and it is intended to target only frictional unemployment. Thefinancial contributions to the Fund are made by both employers and employees through a basic levy of 0,9% on the payroll and on employees' incomes. The problems with UIF relate, in the first place, to the fact that it does not have a wide scope and for a long time it has excluded farm workers, domestic workers, seasonal workers, and new entrants to the labour market. Secondly, the actual payouts are very small and are calculated as a maximum benefit of one week at 45% of a worker's wage for every six weeks of contribution.

Transport has generally been a serious structural problem in SA for most black workers. Townships have been built at great distances from industrial areas and other places of employment, making transport costs a major problem. Subsidisation of transport by employers is not a common practice.

The case for a flexible labour market in SA does not have a justifiable basis. The argument that wages and non-wage labour costs are the cause of unemployment is unacceptable in the light of the inefficient, fragmented, and minimalist nature of labour standards. At a policy level, it is apparent that reform of labour standards, social security laws and benefits needs to see a general reregulation and not deregulation.

To understand unemployment in SA, particularly seasonal and frictional unemployment, one has to look for alternative explanations beyond labour market "rigidities" and "disincentives".

Alternative explanations of frictional and seasonal unemployment

SA has a dual economy, a sky-scraper and a spaza shop economy. In the skyscraper economy, there is an emphasis on digital technology and other technologically intensive methods of production. The labour displacing effects of capital intensity cannot be underestimated as a major reason for retrenchments and frictional unemployment in most sectors of the economy.

Neo-liberal conceptions of the labour market, because of an overemphasis on the equilibrating price of wage labour, have obscured the cost of other production inputs, like capital and capital goods. It is important to note the macro-economic correlations between interest rates and the cost of capital and the import cost of capital goods and the exchange rate. These effectively also increase the cost of production and hence force -rational" solutions that aggravate unemployment.

Through industrial restructuring and public sector transformation, frictional unemployment is also on the increase. In the clothing and textile industry the excessive speed of tariff liberalisation has led to the loss of about 18,000 jobs over the past few months. Public sector transformation has also placed an emphasis on right-sizing through attrition and obviously the outcome will he more frictional unemployment.

Macro-economic policy has also been highly constricting. Fiscal policy has been hemmed into a notion of fiscal discipline that wants to limit government deficit spending to below 5%, while interest rates have been excessively high leading to inflationary overkill. The consequences for employment and job creation have been disastrous. High interest rates have also led to insolvencies and hence further unemployment. In short, macro- economic policy in SA is not conducive to stimulating economic activity and job creation. Instead, it is contributing to the problem.

Since the formal land dispossessions that began in 1913 and 1936, black labour, in particular, was forced into a migratory pattern towards the urban centers. This facilitated the regulated supply of labour and also the depression of the wage value of labour. In the context of the mechanised farming sector, land expropriations have been one of the main reasons for the continuity of seasonal unemployment.

An agenda for active labour market policies

According to Neva Makgetta, active labour market policies are state driven and are intended to target and ameliorate frictional unemployment. At the same time, the productivity capacity of labour is enhanced. Active labour market policies are an important component of seeking to overcome both frictional and seasonal unemployment. Active labour market policies attempt to prevent short run unemployment becoming a long term or structural problem. The state intervenes to reskill and empower workers in order to take on new jobs. Employment maintenance or creation is not left to the market but is consciously addressed by investing in people. What follows is simply the identification of the elements of a package of labour market policies to address frictional and seasonal unemployment. As an agenda, it is intended to serve as a basis for debate and discussion.

To tackle frictional unemployment the following should be considered:

(1) The provision of institutional capacity to train workers in different industries in accordance with standards laid down by the National Qualifications Framework and the South African Qualification Authority. This should facilitate the training of workers in respect of:

. adult basic education;

. recognition for prior learning;

. portable skills acquisition for career pathing vertically and horizontally.

(2) The supply of information through job placement agencies. This kind of information infrastructure can emerge in the context of local economic development, through local government initiatives, or through bargaining or statutory councils.

(3) Unemployment insurance disbursements are necessary. Options in this regard are the following :

. Thorough-going reform of the Unemployment Insurance Act, so that the financial pay outs and the scope of the Fund are radically enhanced; or

. Scrapping the UIF system and replacing it with a dole system or a full-blown welfare net, buttressed by constitutional provisions in the bill rights to make it sustainable.

. If the policy is to be state driven, then the financing has to be either directly by the state or indirectly by the imposition of a payroll tax.

(4) Formulation and implementation of an active labour market policy should be informed by a national framework driven by worker participation. This framework can be embodied in a Social Plan Act, which should introduce an element of compulsion. The alternative is to allow unions and the state in different industries to engage employers to develop industry specific social plans that bring together the constitutive elements of an active labour market policy.

An active labour market policy approach to seasonal unemployment has two options :

(1) The welfarist option which would either bring seasonal workers into the ambit of a reformed Unemployment Insurance Act and Fund or a new welfare net; or

(2) the empowerment option which entails land redistribution, training and enabling support and a people-driven cooperative movement.


PHILIP DEXTER, MP and SACP central committee member, argues that without an expanded public sector there is no possibility of resolving the massive unemployment crisis in our country.

In the struggle against unemployment, active labour market policy is a necessary but not a sufficient solution to create jobs. It can be an essential policy ingredient to solve frictional and seasonal unemployment, however, it does not address the poverty of the structurally unemployed. To confront the challenge of structural unemployment and even the effective implementation of active labour market policies, full employment and labour absorbing growth would have to inform the general direction of policy and development strategy. This would entail the removal of macro-economic, supply side and structural constraints and the introduction of a politically motivated policy reorientation away from "win-win" approaches to policy outcomes that benefit the working class and the rural and urban poor.

This resource is hosted by the Nelson Mandela Foundation, but was compiled and authored by Padraig O’Malley. Return to theThis resource is hosted by the site.