Unemployment: The REAL disaster

The South African government has once again declared a state of disaster, this time in response to the floods in KwaZulu-Natal (KZN); as opposed to a pandemic. The government presumably feels it needs this extra power to avoid being constrained by its own laws and regulations in responding to the immediate disaster. The same can be said of the unemployment crisis, which is now a disaster because businesses and entrepreneurs face numerous regulatory barriers in starting their businesses and operating them, including in hiring employees.

Using the expanded definition of unemployment, the unemployment rate currently stands at 46.2%. This means almost half of able-bodied, working-age adults do not have jobs. The National Development Plan (NDP) calls for full employment by 2030; that goal will certainly not be achieved. We will be lucky if we have employment growth by then.

That we likely won’t achieve any real progress by 2030 calls into question the entire approach taken by the government, including in the NDP, to plan for economic outcomes. In South Africa this has never worked, going all the way back to the GEAR policy which was a great success, but missed its employment growth goals. Ever since then, we have had Industrial Action Plans (while manufacturing declined), Integrated Resource Plans (while we were getting less and less energy for higher and higher prices), and economic development plans which all sought to achieve growth without allowing South Africans to trade freely with one another and with outsiders.

The secret is that trade it cannot be centrally planned. It occurs where it is most convenient for the parties involved, and not simply where the government thinks it should happen. The Free Market Foundation (FMF) has over the years painstakingly argued for greater freedoms for South Africans, especially the freedom to trade. These arguments were largely ignored, and we now sit with the inevitable and predictable result.

The most urgent reforms are required in the labour market, where participants are burdened with regulation and offering any job is unnecessarily risky. First, a company is forced make sure it hires the ‘right’ applicant in terms of the Employment Equity Act, and the targets for that company flowing from the Act. A company can’t just hire anyone in terms of competence; they are forced to consider a person’s race or gender too.

Secondly, you are forced to deal with the minimum wage; it does not matter what the business can afford and what wage the applicant is willing to accept. Both parties cannot agree on a wage that is less than what the government is willing to accept. No matter if the applicant is really desperate for a job and hasn’t worked in years, and the business really needs the employee but only at that wage.

Thirdly, when you start paying the employee, their pay will attract additional taxes from the government. Even though the company is already taxed on its income and on every sale and purchase through value added tax (VAT), that is not enough. The employees’ income is also taxed through personal income tax and other payroll taxes like the Unemployment Insurance Fund (UIF).

Finally, if the employee is bad at their job, disciplining them is also regulated; you have to do it not according to the agreed contract, but according to government legislation, including going through the CCMA. It’s no wonder that almost half of South Africans are unemployed.

There are also troubling trends from the latest Labour Dynamics study by Statistics South Africa, covering the years 2015-2022. The percentage of those people who stay unemployed after becoming unemployed has risen from 67.5% in 2015 to 70.6% in 2020. This means unemployment is becoming more embedded in our society.

According to the study, hours worked were highest in machine/plant operator as well as services and sales occupations. Not surprisingly if you understand the effects of the national minimum wage, the lowest hours worked were in the domestic work occupations. In fact, the minimum wage is doing its intended job in raising median monthly earnings from R3100 in 2015 to R4000 in 2020; but at what cost given the rest of the employment statistics?

The only way to open the path of employment for the 77% of 15-24 year olds who are unemployed, is to repeal all of these regulations. Alternatively, the government can take the approach of exempting the particularly vulnerable groups like women, young people and black people from the employment laws via a job-seekers exemption certificate (JSEC).