Volume 9, No.3 - September 2000

Job Creation Strategy

Labour's input on the jobs crisis

Unemployment constitutes a national crisis. According to the latest Statistics SA figures, in 1999, using the expanded definition that counts as unemployed every adult who wanted and would take a job immediately, some 36 per cent of South Africans were unemployed, compared to 32 per cent in 1994. By the narrower official definition, which takes into account only those still actively seeking work, unemployment was still very high, at 23 per cent in 1999."

In the last three years alone, between 1997 and 2000, oneten formal jobs disappeared. According to the Reserve Bank, in 1999 formal employment in South Africa was at "a level broadly similar to that of the late 1970s." (SARB, Quarterly Economic Review, March 2000)

The million jobs lost in the past fifteen years wiped out all the gains in employment creation over the decade before that. Even when the economy grew, as in the mid-90s and the past year, the formal sector continued to lose jobs.

The 1999 October Household Survey suggested that the employment situation improved in 1998-99. Unfortunately, these data display worrying inconsistencies. Even at face value, they show that informal jobs continued to replace formal ones. The survey counts any income-earning activity, no matter how poverty stricken or instable, as informal employment.

Most of the jobs created will not sustain longer-term development, in the sense of providing an income high enough to support a family, the acquisition of skills or rising productivity. From this standpoint, they are rather a form of concealed unemployment.

Labour put forward a set of proposals to the Presidential Job Summit. Those proposals are still supported. This document essentially aims to summarise the broad strategy underlying those proposals. Where appropriate, it suggests how to make them more effective. Our core concerns are:

• To improve the quality of existing employment
• To promote job security and stem the job loss in the economy
• To provide an income for those who remain unemployed and poor
• To create new employment both in the short term and long term

Organised labour believes that large-scale structural interventions are needed to put us on a job-creating trajectory, which will also bring the majority into the economic mainstream, and through redistribution of assets and resources lay the basis for a new growth path.

This requires a national, integrated and mutually reinforcing package of proposals, which kickstart both a short and longer-term dynamic of employment creation, and achieves the required balance. We want to avoid either extreme of concentrating in a one-sided way on:

1. short-term projects that create some temporary jobs, but in an overall job-destroying development trajectory; or
2. proposals that only have a long-term impact, ignoring the need for urgent measures to address our unemployment crisis.

Clearly, the causes of jobless growth in the past twenty years are complex, and arise essentially from structural changes in the economy. The question becomes how to redirect structural change to establish an employment-generating growth path. The immediate causes of job losses are:

• the massive decline in employment in mining and agriculture, due to fundamental shifts in those sectors;
• job shedding by the public sector, in the name of modernisation;
• the loss of employment in manufacturing with the opening of the economy after 1994.

A strategy to counter these trends has to address broader obstacles to job creation and investment. Blockages include massive inequalities in income and wealth, which reduce domestic demand, innovation and social stability. These inequalities are linked to poor government services for the majority, which undermines social productivity.

A second critical problem remains low skill levels as a result of apartheid. In themselves, job losses in the formal sector aggravate both these problems by worsening income inequalities.

In the past three years, relatively restrictive fiscal and monetary policies have emerged as a critical hindrance to a more productive response. These strategies are associated with cuts in government spending real terms and high interest rates. While they attracted fairly substantial - although highly instable - sums of foreign portfolio investment, they discouraged domestic and foreign direct investment.

Moreover, they limited the capacity of government to implement strong measures to redirect economic restructuring, transform education and training, and extend services to the poor.

2 Strategies toward employment creation

2.1 Short-term interventions The short-term interventions centre on public works programmes, measures to reduce job losses, and income support for the unemployed. They are designed to support longer-term development by equalising incomes and supporting investment in infrastructure. Proposals include:

1. Public works programmes on a large scale, designed to provide basic infrastructure in historically disadvantaged communities, while creating jobs and improving skills.

2. Measures to stem the loss of formal jobs, including:

• changes in the LRA to make retrenchment negotiable,
• changes in the insolvency act to minimise job losses due to bankruptcies by letting workers challenge applications,
• a commitment from business and, in its role as a major employer, from government to ensure that restructuring of any kind minimises job losses and overall creates employment,
• a review of supply-side measures, tariff policies and the efficacy of customs, to ensure that they will ultimately create employment and even in the short run minimise job losses,
• measures to end retrenchment and evictions of farm workers, and
• systems to track and publicise job losses and creation by larger employers.

3. A reduction in working time to 40 hours a week, to encourage employers to hire more workers rather than pay fewer people overtime.

4. A "buy South African campaign" to help expand domestic demand for South African goods.

5. Income support for the unemployed and poor, including

• a basic income grant for all adults at R100 a month, recouped from higher-income households through the tax system,
• improvement and extension of relief from the Unemployment Insurance Fund,
• Concessions for unemployed people where possible, for instance in transport and housing, to reduce their living costs, and
• Support for collective productive activities by the unemployed.

2.2 Measures to restructure the economy Labour's proposals for restructuring the economy essentially aim to ensure more equitable distribution of wealth and incomes, as the basis for a more dynamic economy, combined with sectoral strategies based on tripartite co-operation. The proposals for a pact on productivity and equity, discussed separately, would facilitate the design and implementation of these strategies.

2.2.2 Expansion of public housing and infrastructure A substantial expansion in government programmes to provide housing and infrastructure would both boost employment in construction and contribute to economic and social development. They form an important part of any integrated development strategy. It is critical, however, that infrastructure and housing form a coherent part of broader development plans. Providing housing only far from employment opportunities can undermine long-term employment.

Moreover, services must be provided at a level high enough to raise the productivity of households and enterprises. That means reviewing current standards for water, electricity and housing. For instance, the current process of electrification frequently does not provide enough power for cooking or productive activities, which means that it cannot contribute as hoped to employment creation.

Finally, pricing systems must be redesigned to ensure lifeline services for all. In contrast to this proposal, the current medium-term expenditure framework plans to reduce real spending on infrastructure by over 2 per cent a year in the next three years. It appears that government expects the difference to be made up by private investors. Since in the short run, extending quality infrastructure and public housing for the poor is inherently unprofitable, this strategy seems unlikely to advance the proposed development strategy.

Restructuring the public sector The current initiatives for restructuring the public sector, including the public service, state-owned assets and local government, centre largely on ways to reduce expenditure by cutting jobs or, through outsourcing, salaries. Restructuring in this way will only aggravate the unemployment problem.

To a large extent, this type of restructuring aims to eliminate less skilled jobs, mostly filled by Africans. This approach appears to reflect, in large part, an inappropriate response by management to the improvement in conditions and job security for these workers over the past six years. .

In line with our commitment to a developmental state, labour proposes that the public sector should

• Increase employment to expand services to historically disadvantaged communities and to develop more efficient infrastructure for business, guided by a systematic audit of social and economic needs, and
• Rely on redeployment and retraining to implement restructuring, rather than voluntary or involuntary retrenchment.

This strategy implies that government must review aspects of fiscal policy, especially the commit to cut personnel costs as well as reductions in overall expenditure in real terms.

High interest rates and declining government spending discourage investment. In South Africa, econometric studies demonstrate that investment is related inversely to interest rates and positively to government spending.

In addition, for a variety of historical and cultural reasons, financial institutions appear to lack understanding of the potential of small-scale entrepreneurs, low-income home-buyers, and innovative development projects.

Currently, budget cuts have largely left government without the resources needed to carry out an employment strategy. True, some sectors have roll-overs. Most have occurred where new programmes require that government extend funds to the private sector.

This applies to the poverty relief programmes, DTI subsidies, and much of public works. In contrast, the main social services and infrastructure functions have faced budget cuts in the past three years. In 2000/1, only defence, general government and reserves are expected to grow in real terms.

The document concludes with detailed proposals for government action which can start to tackle the unemployment crisis.