3 June 2019 by and Employment Alert

South Africa’s rising unemployment tide: An alternative model

According to the most recent figures released by Stats SA, the unemployment rate rose to 27.6% in the first quarter of 2019, up from 27.1% in the previous period. This is the highest jobless rate recorded since Q3 2017, as the number of unemployed went up by 62,000 to 6.2 million, and the number of jobs fell by 237,000 to 16.29 million. These distressing statistics are indicative of the inadequacies of the current labour model in combatting the ever-present battle against unemployment.

Given the overt failure of our current labour market scheme, our country is dutybound to revisit its internal policies and take inspiration from the successes of other industrialised or semi-industrialised nations’ efforts to address their rising unemployment rates. In doing so we must understand the role of government, business and labour (commonly referred to as the “Dunlop Triangle”) in creating much-needed jobs and stimulating an ailing economy.

One international model that serves as a useful example is that of Ireland, where government, business and labour formed a Social Accord during the 1990s. This Social Accord yielded positive results for job creation. Lessons can also be learned from Germany where government imposed labour market reforms between 2003 and 2004 to quell rising unemployment rates. These were aimed at increasing labour market flexibility, improving the matching of unemployed workers and job vacancies, and, even, the lowering of unemployment benefits.

Similarly, Spain introduced labour market reforms and witnessed a significant drop in their unemployment rate from approximately 27% to 15%. This labour market reform was modelled on flexible wage rate settings and reduced employment protection.

It would, however, be erroneous to simply apply the international labour markets or trends in South Africa as each country has their own unique labour market climate. Nevertheless, it is important for the three parties to the “Dunlop Triangle” to be mindful of the workings of the international labour markets as their current practices and policies are not achieving the desired results.

Having regard to the successes of the international models, it is suggested that government, labour and business consider the following non-exhaustive factors.

Government

First and foremost, government must ensure the seamless operation of basic infrastructure such as water and electricity. Disruptions in infrastructure is injurious to business which has a direct impact on employment.

World trends have shown that the growth in the creation of employment does not necessarily lie in the formal sector. Employment-friendly legislation is, therefore, important to reduce protection such legislation may entail no-fault termination of employment whereby an employee may be dismissed for a reason through no fault of their own during their first six months of being employed.

Business

When it comes to retrenchments, business must undergo a paradigm shift in that retrenchments should be regarded as a last resort instead of being utilised as an opportune mechanism to significantly cut operational costs. Drawing parallels to practices in Japanese companies, employers should not retrench whilst the managers doing the retrenching derive financial benefit or other dividends from that retrenchment.

Furthermore, employers should ideally allow for broadening their employees’ skill sets and provide mechanisms for productivity bargaining. This is a trade-off in labour negotiations whereby, in return for the employer offering more pay, the employee agrees to changes that will increase their productivity. Another consideration would be wage freezes, pay cuts and bonus reductions for top earners and executives.

Labour

Although trade unions members consist of the employed population, trade union’s actions impact the unemployment rate directly as their demands determine access to the job market. It is therefore pertinent that the workplace is democratised by introducing ballots before employees embark on strikes. Moreover, it is important for employees to avoid limiting themselves to restricted job titles and rather focus on offering a broader skill set. In other words, job flexibility is required from employees.

Lastly, wage freezes must be considered whilst still ensuring that employees receive a living wage. Additionally, wage cuts must be appraised with due regard to productivity bargaining increases and the like.

Conclusion

Overall, although the above is by no means exhaustive, the “Dunlop Triangle” would do well to consider these initial points. It is suggested that government, labour and business enter into some form of social accord, based on the lessons learned from other countries. For a successful relationship to exist amongst the “Dunlop Triangle”, it is crucial for there to be mutual trust and integrity between all parties.

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