Higher pay only good for those earn­ing

Business Day - - OPINION -

Stats SA’s re­cent labour force sur­vey of about 30,000 house­holds con­firmed the woe­ful state of the labour mar­ket. In the third quar­ter, the sup­ply of po­ten­tial work­ers in­creased by 153,000, or 0.4% — much faster than de­mand for labour, which in­creased by 92,000 to 16.4-mil­lion.

The num­bers de­fined as un­em­ployed, not work­ing but ac­tively look­ing for work, in­creased by 127,000 to 6.2-mil­lion, push­ing the un­em­ploy­ment rate to 27.5% of the po­ten­tial work­force.

While the for­mal sec­tor con­tin­ued to shed jobs, the in­for­mal sec­tor was adding them rapidly. In the third quar­ter, in­for­mal em­ploy­ment out­side agri­cul­ture rose by 188,000 and by 327,000, or 12.2%, over the past year to more than 3-mil­lion work­ers em­ployed in­for­mally, or more than 18% of all those es­ti­mated to be em­ployed.

The de­cline in for­mal em­ploy­ment and in­crease in in­for­mal em­ploy­ment is not a co­in­ci­dence. For­mal em­ploy­ment has been sub­ject to an in­com­ing tide of in­creased in­ter­ven­tion by the gov­ern­ment and trade unions since the mid1990s. These have pro­vided those in jobs with con­sis­tently im­proved wages and other valu­able em­ploy­ment ben­e­fits. The in­for­mal-sec­tor em­ploy­ers and work­ers largely es­cape these con­straints.

If for­mal em­ploy­ment — de­cent jobs, as they are de­scribed — is unattain­able, the choice for many is re­duced to in­for­mal em­ploy­ment, or not work­ing, or earn­ing much less.

It should be ap­pre­ci­ated that while for­mal em­ploy­ment out­side the pub­lic sec­tor has stag­nated, the share of em­ploy­ment costs in to­tal value added by pri­vate busi­ness has in­creased. Com­pared, that is, to the share of op­er­at­ing sur­pluses gen­er­ated to cover other costs, in­clud­ing the costs of cap­i­tal em­ployed, which has de­clined with slow out­put growth.

The bill for em­ploy­ment ben­e­fits in real terms has even risen as the num­bers em­ployed have dropped.

De­cent jobs for those who keep them is the ob­jec­tive, an in­tended con­se­quence — there has been an ob­serv­able sac­ri­fice of em­ploy­ment.

Un­em­ploy­ment in SA is not an ac­ci­dent. It is the pre­dictable ef­fect of pre­vent­ing hir­ers and sup­pli­ers of labour from com­ing to mu­tu­ally ac­cept­able terms.

The jobs sum­mit would have been bet­ter de­scribed as a “de­cent-jobs sum­mit”, and the her­alded land­mark frame­work an agree­ment of all and ev­ery­thing that can be imag­ined to pro­mote the de­mand for labour — but with­out any recog­ni­tion that the price of hir­ing labour and the con­di­tions im­posed on its hire may have some­thing to do with the de­mand for and sup­ply of work­ers.

Far too few South Africans now have the skills, qual­i­fi­ca­tions, train­ing and ex­pe­ri­ence of work to al­low them to be em­ployed on favourable terms.

The soon-to-be-im­posed na­tional min­i­mum wage of R3,500 per month, or R20 an hour, will make it even more dif­fi­cult to find em­ploy­ment, be­cause these min­i­mums are well above what many cur­rently earn.

Few of the very poor­est in SA, the pre­tended ben­e­fi­cia­ries, are ac­tu­ally em­ployed.

It has been con­ve­nient for those who wish wages were higher to ig­nore the find­ings of the one com­pre­hen­sive and highly rel­e­vant study of the em­ploy­ment-de­stroy­ing ef­fects

— and wage-en­hanc­ing ef­fects for those still em­ployed — of set­ting em­ploy­ment ben­e­fits well above pre­vail­ing lev­els.

The find­ings of Ha­roon Bho­rat and col­leagues are pre­sumed not to be rep­re­sen­ta­tive but, in re­al­ity, could not be more rel­e­vant.

They stud­ied the ef­fect of higher min­i­mum wages on em­ploy­ment in agri­cul­ture af­ter they were in­tro­duced in 2003. There was a 20% re­duc­tion in em­ploy­ment and muchim­proved wage ben­e­fits for those lucky enough to re­tain their jobs.

There is ev­ery rea­son to ex­pect the na­tional min­i­mum wage will have a sim­i­lar ef­fect on em­ploy­ment.

The in­for­mal sec­tor will once again have to come to the res­cue of the un­em­ployed while they wait, im­pa­tiently, for eco­nomic mir­a­cles.

● Kan­tor is chief econ­o­mist and strate­gist at In­vestec Wealth & In­vest­ment. He writes in his per­sonal ca­pac­ity.


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