The Free Market Foundation's (FMF) decision to challenge the constitutionality of section 32 of the Labour Relations Act has been misconstrued by some.
The FMF is not challenging the constitutionality of Bargaining Council agreements entered into between labour unions and employer representatives. It is challenging agreements entered into between private parties (large unions and employers) being extended to non-participating employees and their employers. And it is doing this on behalf of the fast increasing number of voices that have been unheard for too many years: namely, the unemployed.
According to the expanded definition of unemployment (which includes those people who have given up searching for work because they simply believe there is none available), approximately 7.6 million people are unemployed in South Africa. Well over one-third (35.9 per cent) of South Africa's working-age population has little hope of ever finding employment - this equates to the combined populations of Durban and Cape Town!
Approximately 30 per cent of unemployed people were previously employed but have lost their jobs. More importantly, approximately 45 per cent of unemployed people are new entrants into the labour market; people who are typically low-skilled individuals and have never had a chance to prove themselves. Over 70 per cent of unemployed people are younger than 35 years of age.
Statistics South Africa's official unemployment data also reveal that approximately two-thirds of unemployed people have been unemployed for more than a year. The negative implications of being unemployed for a long period of time should be obvious. There is an erosion of skills, a loss of contacts and reluctance on behalf of employers to hire someone who has been unemployed for a long time. But, more importantly, there are likely to be psychological implications that endure for a long period of time. The long-term unemployed lose their sense of dignity and self-worth and, in the end, give up searching for work because they believe there is nothing available.
Most rational people understand that the single biggest issue facing this country is unemployment. The twin evils of poverty and inequality are manifestations of the underlying problem of unemployment. In other words, poverty and inequality are inextricably linked to unemployment. Many people have tried to silence our attempts to solve the unemployment problem on the basis that we are representing "big business" and that we just want to see people being exploited.
On the charge of representing "big business", this argument is patently fallacious. We are arguing for the rights of the unemployed and small businesses not to have conditions of employment imposed on them that destroy their ability to reach agreements that are acceptable to both parties and make the functioning of their small businesses feasible.
Bargaining council agreements are generally entered into between big business and big unions who agree to set terms of employment that are acceptable to them but which are too onerous for small businesses and their employees, who are not represented at bargaining council meetings, to implement without bankrupting the businesses and costing the employees their jobs. Termination of the ability of bargaining councils to have their agreements extended to non-participating third parties will not affect their ability to continue to agree among themselves.
We have chosen to use the case of the Newcastle clothing sector to demonstrate how the extension of bargaining council agreements to third parties can have vast job-destroying effects.
The clothing sector in Newcastle is not one homogenous group of firms. There are different types of firms that target different customers. Some firms, generally the so-called "non-compliant" firms, target customers at the low end of the market. These firms typically produce basic items of clothing and tend to be characterised by low wages and productivity. Because these firms are labour intensive, wages form a significant part of the overall cost component and profit margins are significantly lower than the larger capital intensive firms that cater for the middle and upper ends of the market.
Due to fierce international competition at the lower end of the market, there is little scope for raising prices. In contrast, the relatively more capital intensive firms cater for niche markets. Employees at these firms enjoy higher wages, commensurate with their productivity, and tend to be party to bargaining council agreements. In this segment of the market there is relatively more scope for raising wages. It is, therefore, untenable that bargaining council agreements should be extended to non-compliant firms that are not actually in direct competition with the higher value-added firms that tend to cater to niche markets in this country.
A Centre for Development and Enterprise (CDE) report produced by Nicoli Nattrass and Jeremy Seekings sums up the Newcastle clothing sector situation succinctly. "The extension of agreements... and resulting job losses puts paid to the argument that South Africa's bargaining councils do not affect employment. Indeed, the story illustrates how, under the hypocritical guise of promoting ‘decent work', labour-market institutions and industrial policies can create an unholy coalition of the state, a trade union, and metro-based, relatively capital-intensive employers whose actions can inflict massive job-destroying structural adjustment on a labour-intensive industry".
The FMF does not oppose unions - to the contrary, we believe in freedom of association. We would like to see more people employed and the unions should appreciate this since they stand to gain from increased membership. We would like to see South Africa become a winning nation where everyone can enjoy a high standard of living. If nothing changes, where will we find the people prepared to invest in a country where over one-third of the working aged population is unemployed?
Removal of the ability of bargaining councils to extend their agreements to non-participating third parties will not see the unemployment problem solved overnight. What it will do is end the imposition of employment conditions on employees and their small employers that if forced on them, destroy the jobs of the employees and make it impossible for labour intensive small firms to continue operating.
Jasson Urbach is an Economist and director of the Free Market Foundation Health Policy Unit. The views expressed in the article are the author's and are not necessarily shared by the members of the Foundation.
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