The origins of our unemployment crisis

James Myburgh on the ‘notorious history' of the bargaining council system

Unemployment has long been listed, in opinion polls, as the main concern of black South African voters. This reflects a truly dire reality. According to StatsSA's Labour Force Survey for the second quarter of 2011: 13,1m South Africans were employed, 2,2m in the informal sector; 4,5m were unemployed (25,7%), 3,1m of whom had been out of work for more than a year. A further 2,2m had given up trying to find jobs, and so were not counted as economically active. Overall, only 40,5%% of the 32,4m South Africans between the ages of 15 and 64 actually have jobs of one kind or another.

For poorly educated black youth the situation is even more desperate. As Lawrence Schlemmer notes most of those affected "will never find sustainable economic activity" something he describes as a "national disaster" of the most corrosive kind.

While politicians across the political spectrum now acknowledge the extent of the problem, there is little real will to implement the reforms needed to begin correcting it. This partly reflects the vested interests at play. The current system benefits politically powerful COSATU unions and, to some extent, big business as well. But it is also indicative of continued confusion as to the causes of this crisis.

This lack of intellectual clarity has allowed the Left to get away with peddling such opiates as the New Growth Path; and the ANC Youth League to agitate for the bullet-to-the-brain solution of expropriation without compensation.

In the more serious minded efforts to identify the culprits behind our high unemployment rate there are two chief suspects. The first is that, under the existing labour dispensation, it is time consuming and difficult to dismiss workers - even for offences such as theft or gross misconduct.

A Centre for Development and Enterprise report states that two thirds of companies surveyed, in one study, had been taken to the Commission for Conciliation Mediation and Arbitration (CCMA) by their employees. "On average, firms lost a week of manager's time as a result." Every year a huge - and increasing - number of cases end up at the CCMA. According to the commission's annual report: "During the 2009/2010 financial year, a total of 153,657 disputes (cases) were referred to the CCMA, an average of 617 new referrals every working day" (see here - PDF). In such circumstances firms are reluctant to risk giving work to untested young work seekers, as it is costly and cumbersome to dismiss them should they turn out to be unsuitable.

The second, and perhaps lesser known suspect, is South Africa's bargaining council system. Unions and larger employers, in defined sectors of the economy, negotiate minimum wage rates and conditions of service. These can be, and usually are, then extended to ‘non-parties' by the Minister of Labour. The Minister can also set wage rates for sectors of the economy not covered by bargaining council agreements. In a recent case the National Bargaining Council for the Clothing Manufacturing Industry has sought to enforce their minimum wage rates in Newcastle clothing factories - something which would close those firms down and throw thousands out of work.

John Kane Berman recently observed that the bargaining council system has a notorious history. To understand why it is so destructive to job creation it is necessary to understand the purposes for which it was originally established.

The system has its origins in the 1922 miners strike. The strike by white mineworkers, which began in early January, was triggered by the decision by the Chamber of Mines, under pressure from a declining gold price, to scrap agreed ratios of white to black workers and the colour bar. By March it had escalated into a full scale revolt. Prime Minister Jan Smuts feared a "red revolution" and the revolt was brutally crushed with 214 killed in five days of fighting.[i]

The Industrial Conciliation Act was passed two years later in an effort to prevent another eruption of such violence. It established industrial councils made up of employers' association and trade unions. As ‘pass bearers' Black Africans were excluded from trade union membership, and from participation in the system. In his 1964 book The Economics of the Colour Bar the economist W.H. Hutt described how it worked:

"Together [the employers and the unions] negotiate wage-rates, hours of labour and fringe benefits. Any agreement may then obtain (and in practice automatically obtains) approval of the Minister of Labour. It then has the force of law; and the Minister may order its provisions to apply to employers and employees in the same or cognate industries who have not been parties to the agreement, in any areas, at his discretion. During the period of such agreements, strikes or lock-outs about matters which the industrial councils have determined are illegal; and for other matters of dispute there are provisions, similar to those common elsewhere, for conciliation and arbitration."

In 1924 Smuts' South African Party was ejected from office in and replaced by the Pact government - a coalition between the Afrikaner nationalist National Party and the socialist inclined South African Labour Party. In the elections the two parties had campaigned for a ‘civilised labour policy'. And in 1925 the Pact government passed the Wage Act which allowed the Minister of Labour to set minimum wages in sectors of the economy not covered by bargaining council agreements. In 1926 the Mines and Works Amendment Act was passed which restored an overt colour bar to the mining industry (the 1911 Act having earlier been declared ultra vires in the courts.)

The essential concern of the (largely white) unions, at this time, was to protect their members from having their jobs taken, or their wages undercut, by (usually, though not always, black) rural migrants who, though semi-literate or illiterate and un-adapted to an English-language urban environment, could discount these initial disadvantages by taking semi-skilled jobs at lower pay.

Efforts by organised labour to protect the relatively privileged position of their members ran essentially along two lines: Firstly, there were the crude demands for the racial exclusion of subordinate groups through the colour bar and, later, job reservation.

Secondly, there was the ostensibly non-discriminatory ‘civilised labour' policy. The central foundation of this approach was the ‘rate for the job.' The cynical reasoning behind it was that, if they had their way, capitalist employers would happily replace white with cheaper but less productive black labour - who then could be trained up. But if they were all forced to pay the same high ‘civilised' wages for semi-skilled and skilled work white labour - from the dominant group in society - would always be preferred over black. This was especially as whites had access to education and apprenticeship training denied to other groups. As Hutt observed the "insistence on the standard rate could... effectively but unobtrusively keep the non-Whites out of the Whites' preserves - an insight which led the Labour Party to make the ‘rate for the job' the foundation of the new policy."

These ‘rates' were set by the Industrial Councils established in terms of the 1924 Act and, in sectors where they did not operate, by wage boards appointed by the Minister in terms of the 1925 Act. The effect of these two Acts Hutt noted, was to bar black labour from "semi-skilled and skilled employments and not from work classed as unskilled." Thus, while it did not prevent black Africans from taking unskilled work it (along with overtly racial measures) denied them the opportunity for advancement within the workplace.

The bargaining council system was carried over, in deracialised form, into the post-1994 labour dispensation. The recent strike by the National Union of Metalworkers (NUMSA) provides a useful model of the operation of the system today. There are approximately 320,000 workers currently employed in the engineering and metals sector - down from a peak of 399,000 in February 2009. Their minimum wage rates are set through negotiations between employers and the unions in the Metal and Engineering Industries Bargaining Council (MEIBC).

Ahead of the strike the minimum entry level wage for the engineering sector was R23.85 per hour - which translates to approximately R4,130.82 per month before overtime payments or shift allowances. This wage is for unskilled, general labourer sort of work. By contrast the minimum wage rate for a Grade D security guard, in the metropolitan areas, is R2,354.00 per month.

Initially, NUMSA demanded a 13% wage increase (8% over the inflation rate for June) along with other demands, such as the banning of labour brokers. The main employers' body, SEIFSA, held out for a 7% increase saying that NUMSA's demands were "unaffordable".

After a two week stay away - enforced through much violence and intimidation - a settlement was reached at the MEIBC. SEIFSA agreed to increases ranging from 8% to 10% with unskilled workers, on the bottom rung, receiving the biggest increment (to R26.24 per hour or some R4,544.77 per month).

Having been involved in acrimonious dispute SEIFSA and NUMSA now suddenly had a compelling common interest - to have the new wage rates applied across the board. The parties thus agreed to "jointly approach and lobby the Minister of Labour to ensure that the revised Main Agreement is retrospectively extended to non parties." According to its figures SEIFSA represents 2,279 companies (25,6% of employers) who, in turn, employ 178,242 workers (53,1% of scheduled employees.)

If the Minister agreed to the extension, and SEIFSA and NUMSA seemed in little doubt that she would, these new wage rates would apply to the many smaller firms not party to the agreement, unless they were able to secure an individual exemption.

In the 1920s this system was used to ensure "civilised labour" standards for semi-skilled and skilled white workers. Today, it is being used by COSATU unions to secure "decent work" for unskilled and semi-skilled union members.

There are two observations made by Hutt in 1964, about this system, which are of relevance to our current predicament.

Firstly, as he noted, "Equal pay for equal work (i.e. for identical outputs of a given quality) is a result of the neutrality of the free non-discriminatory market. It is no method of achieving such a market. Where the standard wage-rate is forced above the free market level (whether through legal enactment or the strike threat), thereby reducing the output which can be produced profitably, it must have the effect of preventing the entry of subordinate races or classes into the protected field or of actually excluding them from it."

In the 1930s the effect, of applying the ‘rate for the job' was to halt Coloured and then black advancement into semi-skilled and skilled positions. Today, the effect seems to be to exclude unskilled black youth from employment in those sectors where minimum wages, for entry level positions, have been set well above the free market level. It seems unlikely that the engineering sector will be contributing many of the 5m jobs that the ANC government has promised us over the next ten years.

Secondly, Hutt noted the "associated managements have combined with the labour representatives to create a joint monopoly under which the two parties provide mutual protection for one another against competition. This protection can ultimately be effected only through the exclusion of labour and other resources from employment where their contributions to the community's real income could have been largest. Yet it seems to benefit the joint monopolists. For instance, it makes things easy for managements in ‘maintaining good industrial relations'; and because all firms represented agree to the same wage-rates and conditions, there is no increase in the competitive burden of costs."

Seen in this way the bargaining council system is, even today, something of a conspiracy between organised labour and big business. While above inflation wage increases may be painful for larger well-capitalised firms this is compensated for by the fact that they squeeze the competitiveness of smaller, more labour intensive, rivals.

In its recent report the CDE quoted a "foreign expert" who stated that an analysis "of the distribution of productivity levels of South African firms revealed that there was a large gap - a ‘missing middle'- between a group of firms (many of them informal) with very low levels of productivity and another group whose productivity levels were quite high. For obvious reasons, wages and incomes tended to be very lower in the former, and relatively high in the latter. What was missing were firms with intermediate levels of productivity and wages. South Africa urgently needed to understand why this was the case, and what would be needed to make those firms grow."

The fact that, under the current system, those more productive firms, along with organised labour, set wage rates across their sector of the economy is surely a key reason for this ‘missing middle'. The system is particularly destructive when wage rates set by business and unions in the metropolitan areas are applied to firms in smaller towns and the rural areas, as happened in Newcastle.

Hutt argued that this system - although immediately profiting business and labour - was actually harmful to the longer term interests of both. The ‘poor white' problem in South Africa had been solved - not through ‘civilised labour' measures - but through the rapid growth of the economy during the Second World War, a period during which the system had largely broken down. It also slowed the "tempo of development" from which both business and white labour would have benefited.

Today, the insistence of business and organised labour in persisting with this system is even more short-sighted and narrowly self-interested. Individual union members often have to carry the burden of supporting numerous unemployed family members. As far as business is concerned high youth unemployment provides recruits and a cause for demagogues demanding nationalisation of the economy.


[i] Hermann Giliomee, The Afrikaners: Biography of a People, (Hurst & Company: London) pp 334-335

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