SA's unemployment is a ticking time bomb - and probably vastly understated

Posted 03 October 2013 Written by Dawie Roodt
Category Labour

When it comes to South Africa’s unemployment rate, you can take your pick: you can either choose 25 per cent or more than 40 per cent, writes Dawie Roodt, chief economict with the Efficiency Group. Your choice depends on your definition. And your definition depends on a single question: have the people who are considered in the statistics been looking for a job?

If Joe Soap, aged between 15 and 64, is out of a job but actively looking for employment, he is included in the official unemployment statistics. But if Joe sits at home and watches television or gambles away his wife’s hard-earned money, he is not considered unemployed; at least, not in terms of the official definition.

Thus our record unemployment rate, already among one of the highest in the world, actually underestimates the true unemployment rate. Even worse, not only are the people who don’t make it into the unemployment statistics not employed; they have simply given up hope of finding a job.

I concede that I may be wrong. Perhaps the actual unemployment rate is significantly lower. Perhaps many people are simply not prepared to deal with the red tape of running a registered business and opt for operating a more informal business, simply ignoring taxes, employment contracts and other rules and regulations. Should this be the case, the informal sector in our country is significantly larger than we believe, and the unemployment rate is significantly lower than we fear.

Whatever the truth, this entire scenario and South Africa’s official unemployment figures are not merely a problem, but a ticking time bomb.

So why do we have such high levels of unemployment? And what can we do to get people to work?

It’s all work, work, work – or perhaps not

Government is doing its utmost to get more people employed. But, of course, they don’t want people employed in any old way; on behalf of the unemployed they also demand ‘decent’ jobs. Nobody is quite sure what a decent job is, but it seems to entail work that pays well and provides various benefits that will enable workers to enjoy a high and rather comfortable standard of living. It also means that workers – female and nowadays male, too – do not have to work when they have a baby. Nor do they have to come to work on an official holiday or if they don’t particularly feel like working.

I am exaggerating only slightly: according to South African labour law, workers have so many rights, are so handsomely remunerated and are often so militant that employers simply do not want to employ them. In fact, the worker who suffers most in South Africa today is the employer, especially the small-business owner.

Why is our government so worker-obsessed?

An economy that is forced into pricing everything in terms of labour input ignores scarcity, tastes and productivity – to the eventual detriment of the economy. All communist countries have learnt this lesson. I hope our politicians will learn it too.

The flaw in the idea of job creation – the elephant in the unemployment room, so to speak – is the very notion that jobs must be created. What the government should be doing is not creating jobs. It should be trying its utmost to destroy as many jobs as possible, because jobs cost money, and the more workers a company employs, the more expensive a production process becomes.

The reason why I say this is that, at the end of the day, real, sustainable jobs cannot be created (or destroyed for that matter); they are the result of something entirely different.

That something different is economic growth. When an economy grows and entrepreneurs seize more economic opportunities and produce more to cater for the rising demand for their products, more people will be employed. Let’s be very clear on this: entrepreneurs do not employ people because they want to employ them; they employ people because they don’t have a choice. It is the only way in which they can capitalise on their economic activities. If I shocked you out of your altruist utopia by this gentle reminder, I apologise.

I maintain that jobs are not created; jobs happen. They happen under the right circumstances.

When the entrepreneurial worm turns

South African labour practices are very tightly regulated. From time to time a determination is made by a central body, which effectively becomes law. Both workers and employers in the particular sector must then adhere to this determination. But once a law becomes too much to bear, people begin to ignore it. Let’s take a look at what happened in the town of Newcastle in KwaZulu-Natal.

A few years ago, the regional textile council decided to set a minimum wage for the textile industry, which turned out to be unaffordable for the majority of small-factory owners in Newcastle. Many entrepreneurs simply relocated or closed down their businesses. A few, however, decided to continue to employ workers at a wage below the set minimum. They told their workers that their factories would have to close down if they had to pay the new minimum wage, but if the workers were prepared to work below the set minimum, the factory would stay open and they would not lose their jobs.

As expected, the bureaucrats behind the industry and the leaders of the established trade unions weren’t going to accept this. Non-compliant factories were closed down and employers fined.

And what happened then?

Well, the workers who were about to lose their jobs attacked industry leadership and trade unions; they even tried to burn down their regional offices.

The moral of this story? While the workers obviously would have wanted their pay to increase, they wanted their jobs even more. The fight in Newcastle still rages on, but interestingly and perhaps encouragingly, workers and their bosses are fighting the same foe: a labour-destroying system.

Dawie Roodt is an economist and author, with Linette Retief,of the book Tax, Lies and Red Tape (Zebra Press). 


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