The Long Term Effects Of Decent Jobs

Published Date: 02 Nov 2017

The labour market is marred with high levels of unemployment. This is despite a number of initiatives that government has brought about to increase job creation. The official unemployment rate has been estimated at 25.5% by the QLFS q3 2012 (StatsSA, 2012).

There are also a significantly higher number of women unemployed in comparison to men. 28.2% of all unemployed individuals are women while only 23.3% are men. When one considers this break down geographically you’d find that the Frees State province has the highest level of unemployment at 32% while the province of Kwa-Zulu Natal is lowest at 21.3%. (StatsSA, 2012).

According to the 2012 Country Intelligence report by the IHS the structural problems related to rigid labour laws, high real wages and a highly unionized workforce have kept unemployment high (IHS, 2012). Some of these threats have posed challenges for a large number of workers in a South African town known as Newcastle.

Newcastle Textile situation

Newcastle is a town in Kwa-Zulu Natal that underwent industrialisation in 1970. Many of the jobs were provided by ISCOR, a large steel company, which planned to expand in the city. However the firm changed its plans leaving the city with a shrinking industrial base. The town build a strategy to attract East Asian clothing firms. By 1996 the town had 11 295 jobs as a result of clothing and knitwear (Nattrass & Seekings, 2013).

The manufacturing industry currently contributes 27.3% of the Gross Value added in the Newcastle economy. 8% of this is directly attributable to the Newcastle textile industry. The Textile industry in Newcastle employs the largest amount of individuals per manufacturing industry at 42.6% of formally employed individuals. Newcastle also attributes for 86% of all textile manufacturing in the district (Newcastle-Municipality, 2012).

The National Bargaining Council – NBC – launched a compliance drive in 2010 with the view to enforcing a minimum wage throughout the clothing sector. This has posed a threat to firms that do not comply with the standards that the NBC has set out. In Kwa-Zulu Natal approximately 68.3% of the textile workers belong to firms that are not party to the agreement set out by the NBC (Nattrass & Seekings, 2013).

The NBC’s enforcement of its plans has had dire consequences for a number of firms in Newcastle. In one case a firm with 1660 workers was forced to close its doors due to not being able to operate under the laws. Another firm followed putting a further 1600 individuals out of work. Subsequently there have been a number of firms that have had to shut their doors leaving large numbers of workers unemployed (Nattrass & Seekings, 2013).

Newcastle has a high proportion of textile firms. The textile firms that operate in Newcastle can be broadly divided into two main categories, the first being firms that operate in niche markets producing fashion items and the second being firms that supply cheaper low-end products (Paton, 2013). The latter are the firms that generally contravene the laws on basic wages by paying low wages for their employees. These firms are also often found as being non-compliant with some of the requirements set out by the NBC and the South African labour department. The above mentioned categories of firms hold opposing views with regards to the laws set out by the NBC.

Decent wages vs. Jobs for all

The views in that are present in the Newcastle textile industry form a dichotomy of decent wages for all workers versus sub-minimum wages for some workers. The latter is the view that is held by the smaller firms that are producing cheaper products. The reason why this dichotomy presents a contentious state of affairs is due to the following. The decent wage argument poses a threat to smaller firms that cannot afford to pay its workers higher wages. This means that these smaller firms could be forced out of business. On the other hand the premise for the sub-minimum wage argument suggests that more workers will be able to be employed if they are paid sub-minimum wages. Thus this leads to a situation where more individuals are able to be employed however under the hindrance of receiving wages that are below the minimum wage stipulations.

To gain a better understanding of which of the arguments are sounder I shall undertake a brief analysis of some of the pros and cons related to each.

Starting with the first argument, which is propagated by government –in particular the Labour department, the NBC as well as firms that can "afford" to pay the higher wages. Firstly one of the pros for this argument is that the minimum wage requirements are not set at one standard amount across the board. There were a number of factors taken into consideration when setting up the minimum requirements for wages. Andre Kriel general secretary of SACTWU states that in Newcastle that minimum wage for a machinist is R369 for a 45 hour week whereas in Cape Town its set at R446.50. This means that when the minimum wage was set factors that are unique to say an employer and employee in Newcastle were taken into account (Kriel, 2013).

Another pro is also stated by Kriel in the same article as the one referred to above. He mentions that wage increases attribute very little to job losses and that there are a number of other economic factors that cause it. Kriel urges that going against wage stipulations is a race to the bottom, meaning that lowering wages creates bigger loses for all the parties involved (Kriel, 2013).

One of the major cons is that many argue that it is not possible to compete with the low-cost clothing manufactured from overseas countries such as China where labour costs are lower. The premise to this view is that when adhering to the minimum wage laws that the input costs become too high. This at times leads to a firm operating at a loss due to competition and eventually closing its doors. This many believe leads to increased levels of unemployment due to firms having to shut down or relocate to areas with lower real wage laws (Nattrass & Seekings, 2013).

Another con is that many hold the view that the South African Labour market already has a large amount of regulations that is hindering economic growth. The IHS Global Insights a body that completes international economic forecasts states that South Africa has inflexible labour regulations which hinder short-term economic growth. They further state that it is this that leads to rigidness with regards to setting performance-enhancement incentives to increase productivity (IHS, 2012).

The second view is held by the firms that state that claim they cannot afford the minimum wage, the Centre for Development and Enterprise and other related parties. An advantage of this approach is that it allows for firms to be able to offer incentives for performance and small payments during off season. Professors Jeremy Seekings and Nicoli Nattrass of the University of Cape Town argue that if these firms were to comply with the minimum wage that they might have to stop the practices mentioned above. This is of particular concern since Nattrass and Seekings estimate that these payments are at times equivalent to double the minimum wage as set out by the NBC (Nattrass & Seekings, 2013).

Another pro argument in relation to sub-minimum wages is that there are a large amount of individuals that are employed under the current system. The premise to this argument is that many of these jobs may be lost if the laws are enforced. This will lead to increased unemployment in a labour market that is already contending with high unemployment figures. Therefore supporters of this view state that it is better for individuals to be employed under bad conditions than to not be employed at all (Marais, 2013).

A notable con is that these workers are subject to poorer working conditions and experience a lower standard of living. This is the essence of one of the arguments presented by Ilan Strauss an economic consultant at Wits University. He presents the view of Joan Robinson a British economist who in 1937 labelled a reduction of real wage as a beggar-my-neighbour policy. He stated that this approach is unfair competition and leads to a worsening of working conditions and unfair trade practices. Robinson further states that in the long-term it is better for firms that cannot afford the wages to leave the market since the lower wage does not benefit the entire market. He states that lowering the wages will not lead to economic growth since only technological advancements and improved quality leads to real growth for all and that these factors eventually outdo cheap labour (Strauss, 2013).

There have also been a number of allegations made against firms that breach the basic wage laws. These range from workers working overtime without compensations to workers being locked into factories and forced to work through the night. Workers have signed affidavits that attest to the above mentioned. This not only indicates that these accusations are from credible but also strongly suggests that there are serious issues that sub-minimum wage earners are facing (Strauss, 2013).

The country needs decent wages for all

I am in support of the view that the NBC and government are proposing. I will outline why I am in support of this view followed by the long-term effects of this view. Firstly what do I mean by decent jobs for all? Well I think it is important that workers are covered by the Basic Conditions of Employment Act should be treated within the law. Therefore if there are conditions that stipulate what the minimum wage should be this should be upheld by all firms in the labour market.

The reasons why I support this view are because firstly I find the argument presented by Joan Robinson compelling and logical. The essence of his view is that when companies are allowed to bypass the law of the minimum wage and thereby lower the "real-wage" that this is a potential catalyst to unfair labour practices.

Firstly this makes sense because if a company is not willing or able to uphold the minimum wage how likely is it that that same company upholds the other stipulations of the law?

Also if companies are allowed to lower the minimum wage at what point will it be low enough? I believe that compromising the minimum wage may lead to further opportunities for companies to exploit and "push the limit" of where the minimum wage can be set. A firm that simply states that the reason why the basic wages should be reduced is because they cannot afford to pay them is not drawing a worthy conclusion. Companies should manage their assets in a way that makes it possible for them to comply with the law.

Lastly setting a precedent where companies are allowed to "set a new" minimum wage takes regulative authority away from government. This means that if government is undermined when it comes to the setting of basic wages, does this not open the way for companies to exploit other stipulations set by government? This could be dangerous and there has been a correlation between firms that do not comply with paying the basic wage and firms that contravene other laws outlined in the Basic Conditions of Employment Act among others.

In my view I hold the benefits to the majority as outweighing the benefits to a few. What I mean by this is that I think it is better for a few individuals to lose employment now that to be offered lower wages since the latter puts the entire industry at risk. Fair wages for all will strengthen the economy in the long run. This could even result in workers that were made redundant now having a possibility of re-entering a stronger labour market at a later stage.

This view runs in line with a call for technological advancement and quality improvement. Not only do these lead to growth in the sector but they also mean better goods are delivered to the end-consumer. It also opens the way for innovation and possibly the generation of new goods markets. This culminates in positive economic growth.

The long-term effects of decent jobs for all

I think that are a large amount of long-term benefits that can be derived from this view. It is true that there will be a number of short-term negative impacts. However what is of greater concern should be the long-term sustainable growth of the entire economy. Therefore I will mention what I believe are three of the major long-term benefits that can be derived.

Firstly this argument avoids the potential trap those undermining government regulations can lead to. This means that all parties involved will need to abide by the laws as set out by government. In the long run this may lead to improved standards of working for all since all companies are more likely to abide to the rules for governing the workplace and workforce.

Secondly the short-term effects of job losses now may be outweighed by long-term growth in the entire industry and subsequently the economy. This means that in the long run those who might be made redundant now have the prospect of re-entering a stronger market which may possibly be paying higher wages.

Lastly my view encourages fair competition by means of technological advancement and quality improvements. It will result in increased growth of the entire sector. This means that all stakeholders in the environment are more likely to be satisfied. Workers are more likely to have increased remuneration and improved working conditions. Employers have a higher probability of receiving higher profits. Lastly government may have an increased likelihood of reaching positive economic growth.

Having considered all these effects I believe that there should be a stringent approach by the parties implementing policies in relation to matters such as minimum wage stipulations. This will lead to benefits in the future that are greater than the present losses that we will experience. The South African government needs to continue to regulate the labour market partly since there are employers that seek to exploit their employees. If government does this successfully it can contribute to possible economic prosperity for all.