Labour Market Policy and the Emasculation

of the Right to Work:

Lessons from the Clothing Industry

Jeremy Seekings

(University of Cape Town)

Freedom Charter:

There Shall be Work and Security!

… The state shall recognise the right and duty of all to work. …

The NDP:

•estimates that 11m new jobs will be needed by 2030;

•whilst eschewing the language of rights, it implicitly proposes a right to work through (if necessary) a massively expanded Expanded Public Works Programme, i.e. the EPWP serves as a partial employment guarantee scheme (prospectively costing >5% of GDP).

•hopes for a massive expansion of employment for less skilled workers in small and medium-sized businesses in labour-intensive sectors, i.e. precisely the occupations/businesses/sectors that have failed to grow – or have shrunk – in the past.

How does the NDP imagine that these jobs will be created?

•‘active labour market policies and incentives to grow employment, particularly for young people and in sectors employing relatively low-skilled people’

•at first, emphasis on ‘mass access to jobs’, with flexibility on wages (as long as existing, experienced workers are not displaced) and wage moderation: ‘In the earlier years, as the country expands access to employment on a mass scale, a large proportion of working people will receive low pay.’

•subsequent emphasis on wage growth

Job creation vs “decent work”?

• Decent work is an unassailable objective

• But how should any possible tradeoff – in the present – between decent work and other objectives be managed? Might there be a tradeoff, in the short-term, between decent work and job creation?

• The ILO emphasised both job creation and “decent work”, and “decent work” was not primarily about wages

• In South Africa: the “decent work agenda” is often delinked from meaningful job creation, and focused more sharply on wages

•The NDP reflects the original ILO position (= echoed by Mantashe, Gordhan, Manuel etc) more than COSATU’s

The NDP: long on vision, short on detail

•Rhetoric about tough choices …

•But little to say about what the state will do differently to steer the economy down a growth path that is more labour-absorbing growth than hitherto.

•The only major reform mentioned = a youth wage subsidy.

•No discussion of how labour market institutions shape the cost structure of labour-intensive sectors, leading to job destruction, especially in tradable sectors; this is the dark side of South African labour market policies.

•A first step: End state-sanctioned job destruction!

The first step: Stop state-sanctioned job destruction.

•The Minister of Labour uses the extension mechanism in the LRA– To impose increases in the minimum wage in some sectors, to levels that

some employers cannot afford, without any requirement even to consult with the affected employers or workers, or to take into account employment effects;

– To criminalise non-compliant employers; and hence– To destroy jobs, both directly and indirectly

•Insofar as this happens:– South African workers do not have a right to continue to work in jobs that may

be compliant with all other labour legislation and pay wages that were higher than the pre-existing minima

– Wage-setting institutions conflict with the NDP vision of ↑ employment in labour-intensive sectors.

– This is tragically ironic, in that criminal, non-compliant firms may pay wages < legal minima but > the payments made to EPWP participants.

Job destruction in South Africa:

Since 1994: wholesale destruction of less skilled formal employment in labour-intensive, tradable sectors.

Clothing industry:

• last remaining low-wage, labour-intensive manufacturing sector (perhaps even the last such tradable sector)

• squeezed between cheap imports and upward pressure on local costs (primarily wages)

• therefore = a focus of debate (or battleground) over “decent work”

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Employment in the Clothing Sector

Clothing

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Employment in the Clothing Sector

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Job destruction in the clothing

sector: abandoned factories in very poor, rural areas

How are jobs destroyed? (1) The process for setting minimum wages

1. SACTWU and the various regional employers’ associations negotiate in the National Bargaining Council (NBC)

2.If SACTWU and at least one of the employers’ associations agree, then their Collective Agreement is binding on all members of the employers’ associations that are party to the agreement

3.The Minister of Labour extends the Collective Agreement to all employers, i.e. employers who were not party to the agreement in the NBC, across the whole country

4. Court sheriffs (acting for the NBC) attach the assets / close the factories of employers who do not comply; jobs are destroyed directly and indirectly

How are jobs destroyed? (2) Raising minimum wages

Wage Board / Employment Conditions Commission:•modest increases in 1997 (WD471 extended) and •a more marked increase in 2000 (SD4) - but cushioned by depreciating Rand.

How are jobs destroyed? (2) Raising minimum wages

Wages set by regional bargaining councils

NBC established 2002

Wage Board / Employment Conditions Commission: •modest increase in 1997 (WD471 extended), and •a more marked increase in 2000 (SD4) - but cushioned by depreciating Rand.

How are jobs destroyed? (2) Raising minimum wages

NBC (established 2002): sustained increases in minima through extension of collective agreements in face of strong Rand and strong opposition

Arguments made in defence of job destruction in the clothing industry

(and our counter-arguments)

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Tariff reduction on 1994 1997 2000 2003imported clothing 100% 78% 60% 40%*

* Later raised to 45%

Arguments made in defence of job destruction in the clothing industry

(and our counter-arguments)

We are not arguing that:•There should be deregulation of the labour market•There should be no minimum wage-setting•Minimum wages should be lowered in all sectors•Minimum wages in the clothing sector should be abolished•Unemployment in SA is primarily or even largely the consequence of labour market regulation

We are arguing that:•The level at which minimum wages are set has large effects on employment in specific circumstances, notably in labour-intensive, tradable sectors •Minimum wages should not be increased through the LRA extension mechanism without taking into account possible employment effects•If or when there are employment effects, then minimum wage-setting should take into account the preferences of the workers most affected•The NDP vision of substantial employment growth in low-skilled occupations cannot be realised in tradable sectors without selective flexibility on minimum wages

Working papers by Nicoli Nattrass & Jeremy Seekings:•‘Differentiation within the South African clothing industry: Implications for wage-setting and employment’, CSSR Working Paper no.307 (Centre for Social Science Research, University of Cape Town).•‘Institutions, wage differentiation and the structure of employment in South Africa’, CSSR Working Paper no.309 (Centre for Social Science Research, University of Cape Town).•‘Job destruction in the South African clothing industry: How an unholy alliance of organized labour, the state and some firms is undermining labour-intensive growth’, CSSR Working Paper no.323 (Centre for Social Science Research, University of Cape Town) and CDE Focus (Centre for Development and Enterprise, Johannesburg), January 2013.

Criticisms of our third Working Paper by SACTWU (in the press, to UCT, etc), and our replies to each and every criticism.

All available on: www.cssr.uct.ac.za.

Is there a “race to the bottom”?technology, production and markets

Labour-intensive, lower-wage (non-compliant) factory

More capital- and skill-intensive, higher-wage (and compliant) factory

Our labour-market and industrial policies favour this end of the industry…

Labour product-ivity (output per worker)

wages

Higher wage, higher labour productivity firms: producing for

niche markets; subsidised by DTI;

mostly metroLower wage, lower labour productivity firms: producing for

mass markets, competing with

imports; mostly non-metro

Labour productivity (output per worker)

Raised minimum wage

Increased labour productivity through capital subsidies

Labour productivity (output per worker)

Raised minimum wage

Firms move into more capital- and skill-intensive production

Increased labour productivity through capital subsidies

Labour productivity (output per worker)

‘Non-compliant’ firms shut down; jobs are destroyed; consumers buy imported clothing

Is there differentiation in the sector?Do all employers use the same machinery, differing only in make and age?

This is like saying that all cars on the road are the same and that the differ only in make and age…..

If technology makes no difference, why:•Did SACTWU general-secretary Ebrahim Patel spend ten years pushing the government to adopt an industrial policy for the clothing industry that focused on pulling/pushing firms into more capital-intensive, high-wage production?•Did the DTI spend R500m in 2010-12 on capital subsidies for the larger, compliant firms? (Including about R100m to union-owned Seardel!)

Yes, some firms in Cape Town are vulnerable

• CMT (cut-make-and-trim)• Primarily for a niche market: K-Way• The employer is strongly opposed to Newcastle firms

having a competitive advantage due to lower wages• But where is their main competitor? Lesotho!