Gauteng Business News

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LEGISLATION: Amended Labour Bills Could Lead to Job Cuts


Recent Gauteng Business News

GovernmentÂ’s proposals around equal pay fly in the face of job creation and could lead to job losses if implemented. This is according to John Botha, executive director for strategy at Production Management Institute (PMI), speaking from Johannesburg. Botha was responding to the acceptance by Cabinet of the Basic Conditions of Employment Amendment Bill and the Labour Relations Amendment Bill, which has triggered a flurry of reaction since the announcement at the end of March.

“The Department of Labour is proposing policies which are in direct contradiction to strategic national goals around job creation. The National Development Plan, the New Economic Growth Path and the National Skills Accord, signed last year by business, government and labour, all promulgate a more buoyant and receptive labour market that will drive labour intensive job creation,” Botha said.

“What government is proposing is a form of regulation of actual wages which interferes with the very rationale as to why collective bargaining exists – to negotiate better than minimums.”

Labour Laws for Equal Pay for Work of Equal Value

The proposed new labour laws planned to revise fixed term labour regulation and introduce the principle of equal pay for work of equal value after six months of employment.

“This is simply absurd because minimum legislated wages in South Africa are established under bargaining council agreements, sectoral determinations and the Basic Conditions of Employment Act.

“Any payment above that should be left to the market forces of supply and demand as well as to each company to determine how much it can afford given its business model. Effectively, equal pay includes benefits like pension and medical aid, which will shoot up payroll costs to such an extent that business will be totally deterred to employ.”

South AfricaÂ’s labour elasticity ratio is an alarmingly low 0,7%, which means that for every one percentage increase in employment cost there is a corresponding 0,7% decrease in the level of employment.

“If the ratio is applied, employment would decline by around 13% where this principle of equal pay is applied.

Is the Department of Labour Sincerely Prioritising Job Creation

Botha cited a paper published this month by the International Monetary Fund on employment trends in South Africa. “This report points to the fact that the rapid growth of the real wage has outpaced labor productivity growth in most sectors, and played an important part in hampering employment creation.

“One must therefore ask if the Department of Labour and the unions are sincerely prioritising job creation, given especially their opposition to a youth employment subsidy that estimates reveal could create in excess of 400 000 jobs in three years.

“Government is proposing a form of regulation of actual wages – a policy that interferes with the rationale of the fact that collective bargaining exists to negotiate better than minimum remuneration.”

He emphasised that the Labour Relations Amendment Bill contained very little that benefited business and offered little hope for job creation.

Botha says equal pay becomes even more complex because of “highly subjective” pay determinants like merit, performance, experience, length of service, highest qualification, level on the National Qualifications Framework and whether the candidate was on a formal career and succession path.

He maintained that the problem was compounded by a misunderstanding of the “equal pay for work of equal value concept”, partly since several possible interpretations existed for each of the words in question. Did the word “pay”, for example, mean basic pay, remuneration or cost to company‘

The Labour Relations Amendment Bill also introduces a new measure "to create more flexibility for employers in dealing with the dismissal of high-earning employees" earning more than R1m a year.

Says Botha: “This is firstly a very poor “concession” as it is in fact meaningless in the bigger picture. Also, it will never hold as it would be counter the Constitutional Right to fair labour practices.”

On the demand-side front, Botha pinpointed factors as tempering the demand for labour:

· an overregulated and inflexible labour market;

· an unreliable workforce prone to militant strike action; and

· wage inflation decoupled from labour productivity gains.

“Labour is effectively pricing itself out of the market. To ignore this phenomenon and the simple economic laws of supply and demand will have a profound effect on government’s ability to achieve its employment target of 5-million jobs by 2020.

“Clearly, a far greater emphasis needs to be placed on stimulating the demand for labour. Simply put, labour needs to make itself more attractive to employers.”

Botha contended that while the SME sector offered the biggest potential for job creation, initiatives designed to stimulate the sector were largely “superficial”.


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