LABOUR MARKET INFLEXIBILITY

This is the twelfth edition of this weekly blog and was posted to Facebook on 18 October 2025.

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Note that every new policy has negatives, there is no free lunch. In the interests of brevity and clarity, I will not always be going into deep detail of the why and why not or the mitigations which may be in other blogs.

What?

Increasing labour market flexibility and competitiveness.

Why?

We have massive unemployment. Foreign direct investment (FDI) has plummeted.

Note that this is our percentage share of world FDI, not just the amount – so it is independent of factors such as the “great recession”. Note also that prior to 1998 our companies invested in other countries more than foreign companies invested in South Africa. From1998 to 2014 we enjoyed a period where our “instock” FDI skyrocketed and comfortably exceeded our “outstock” (other sources put this great period as 1995 to 2016). Think about the implications of this – it means that compared to the whole world South Africa was seen as a good place to invest money during those years. In jobs terms, these companies were saying “we can make more profit giving South Africans jobs than if we invested our capital in another country”.

Since 2014 this is no longer true. We are no longer a preferred destination for foreign capital. As in previous blogs, this is a serious problem. No factory can be built or enlarged without CAPITAL. No equipment for said factory can be bought without capital. Same for hotels and anywhere that people could possibly be employed. Even our own companies are sitting on record amounts of capital and not investing it. They too do not trust that they can make a return on that money to justify the risk of investing it.

The reasons for this are many. Crime (see blogs #1 and #2 in this series), deteriorating infrastructure, poor education (see blog#10) and lack of reliable power and rail transport (see future blogs) amongst others, but the inflexibility of the labour market is a key factor.  We are rated 116^th out of 148 countries in terms of labour market efficiency and 103^rd in overall economic freedom. This has to change.

 What does labour market inflexibility mean?

It means that companies cannot easily adjust their staff requirements to the realities of their current business needs or the wider economic cycles. It means that salaries are determined not only by what the job produces, or the value created by the work. For a company to succeed, every person working in the company must produce more value in some way than their cost. Their labour must pay for their own cost plus for the capital borrowed to build and equip the business, plus more if the business is to grow (and thus employ more people).

In the interest of protecting labour from abuse by employers, we have developed one of the most restrictive labour market ecosystems in the world. If we had a very well - established economy with strong industries and full employment so that most of our market was internal and had many geographical advantages when these were instituted, it would still have been a very heavy burden which would gradually have killed our competitiveness and reduced employment. As it was, our reality was far from this utopia, and the labour market rules and laws has contributed to the massive unemployment and starvation we now face. It is crushing the life out of our economy as surely as a python wrapped around a duiker.

We must redress the imbalance between the rights and opportunities of the poorest employed with those of the starving unemployed. More precisely, we must find a way to reasonably protect the people already employed without throttling the ability for the economy to grow and give more people a chance.

Collective bargaining which crosses from one company to another (sectoral bargaining) is a fundamental problem.

Companies in an industry are essentially competitors. Forcing them to bargain collectively means that they are forced to collude. The very fact that we have bargaining councils creates a false “them and us” dichotomy. It ironically creates the world that Marx railed against where there is a (permanent) working class and a (permanent) owner (or capitalist) grouping locked in a win/ lose struggle where we all end in poverty. We should rather create a system where companies compete for workers.

It is not in the interests of workers that whole sectors have the same pay scales. If there is no competition between companies for the services of their labour – what upward pressure on salaries exist? Competition between companies is positive for labour.

Sector wide conflict and strike action is lose – lose. After a strike an industrial sector will never get back the lost production. That means lower profits for all companies which equates to less money for future growth and thus job creation. If strike action is limited to a single company, that company will lose compared to its competitors which is a powerful motivator for them to avoid the possibility of industrial conflict.

Bargaining councils immediately mean that companies am not motivated to give any more that the absolute minimum in wages, benefits and work conditions prescribed by the industry. It is a race to the bottom.

If I am, for example, a skilled steel industry machinist and there is industry wide salary equality for machinists how do I negotiate for a higher wage by a new employer? Without sectoral bargaining, a small company may choose to pay me more because they do not have multiple layers of management – so need someone with the skills and initiative required to know the objective and achieve it without excessive supervision. Do workers want to be a “unit”, a commodity, interchangeable with all others in the same category?

 Some companies may opt for a work environment with more training and chance for upward mobility instead of just higher salaries, to attract staff. They can thus cut their payroll and get staff trained exactly to suit their own needs as they grow. Instead, we have a payroll tax funding SETA’s which have been monumentally corrupt and an expensive failure. SETA’s should simply be shut down. It was a failed experiment. Companies themselves can better spend the 1% on their own staff.

National unions or sectoral unions cease to have a function of protecting workers against the bad actions of individual companies/ employers and instead, by treating all employers as the same, they actually prevent positive developments in work conditions. Why would a company put in a hoist to help lift heavy things if the staff doing the lifting are paid the same whether they grind away their bodies or not? By forcing companies to negotiate as a national body, they inevitably push them towards collusion in other ways – even if that collusion is just by common practice and not actual collusion.

 Smaller companies in an industry are the lifeblood of the economy as they force efficiencies on the incumbent majors. They are flexible and able to adapt to market changes or use new technologies far easier and quicker than their larger competitors. They should not be forced to apply the same wage adjustments negotiated by their competitors. Smaller companies can often offer a more flexible and worker friendly environment to their staff. Staff have more power over their day to day lives. They can easily access top management with their concerns; they can offer suggestions which can quickly be adapted. Mega companies are forced to standardise and have layers of bureaucracy and encyclopaedias of rules and SOP’s. These things may allow smaller companies to find workers at lower pay levels than their large competitors.  

Another problem limiting hiring and growth is the difficulty in reducing staff if the business cycle turns negative or if the company loses a contract. Businesses in cyclical industries thus tend to try and fill positions with workers from labour bureaus – which means that they do not have a real relationship with the workers and workers have no path to improvement of their lot. Their lives remain perpetually unstable.

The “last in first out rule” when a company needs to use redundancy to cut costs in an economic downturn means that companies downsizing may lose workers who are excelling or whose skills are more suited to the reality of the companies needs.

As companies grow, their need for people with certain skills increases and their need for people with other skills decreases. They need to be able to adjust for this.

It happens that some newer employees perform better than some legacy employees in a changing environment. A no-fault divorce should be possible with adequate compensation.

How?

 No companies should be allowed to collude in their negotiations with staff. For this purpose, a “company” will be defined as any group of companies having in common more than 25% in ultimate shareholding.  

Similarly, no unions should be allowed to negotiate on behalf of more than one company as defined above.

In the event of redundancies, the last - in – first - out principle should be abandoned – so that companies can keep their best performing staff.

Companies should be allowed to make a no – fault individual redundancy of a staff member who has not committed a fireable offence or offences but is just underperforming or unable to adjust to the changed requirements of the company (equivalent to irreconcilable differences in a divorce proceedings). The efficiency and survivability of the company and the jobs of all the other staff depend on this.

Of course, this will make the security of employed people less – so a balancing compensation needs to be instituted. In the event of individual redundancy, the redundancy pay made to the staff member by the company should be double that paid in general company / market - forced redundancies.

Why not?

1)              There will be an immediate flood of redundancies increasing unemployment. There may be an initial increase of people losing their jobs, but there will also be an increase in hiring because of this and other changes envisioned in these blogs. The double redundancy pay will help these people survive, but, this transition pain does need to be further mitigated. Our UIF had R151 b in March of this year. This is approximately sufficient for the typical UIF payments / claims for 5 years operations. Given out current crisis, this is excessive. In mitigation of the suffering of people who may be temporarily unemployed, by liberalisation of labour laws, the UIF payments should be lengthened by 100% for the next 5 years. This will give people made redundant an income for double the time until they can find another job.

2)              Company – based unions may not have the reserves or skills needed to negotiate successfully with their employers.  This is partially true, but small companies have themselves small reserves and skills and so are equally matched. The provision that companies linked by shareholding will be regarded as a single company will assist with this problem as well as giving smaller startups an advantage in their labour relations. 

3)              Companies may make workers redundant to avoid pension or other benefits due to them. Pensions are now carried with the employee from job to job. Benefits due or about to fall due will have to be added to “no fault redundancy”.

4)              Companies may make experienced staff redundant to hire cheaper new entrants. This may be true, and so a provision that a company making more than a small percentage of its workforce redundant through the “no fault” mechanism will be referrable to the CCMA, where the pattern of dismissals can be reviewed.

So, the suggestions in this blog are:

1)              Stop sectoral bargaining

2)              Allow no fault individual redundancy with a payout equal to double the normal redundancy pay of 1 week per year of service

3)              Double UIF payout amounts for 5 years

4)              Abandon the “last in first out rule”

5)              Close all the SETA’s

If you are in favour of these ideas, please give a thumbs up on Facebook.

More generally, if these blogs are interesting and making you think, even if you disagree – please share them with others – we need everyone to be looking for solutions.