Job-loss season is here and unions are to blame

Job-loss season is here and unions are to blame.

By Brian Kantor*

The annual strike season is well upon the economy. The usual well-above-inflation increases are being demanded and accompanied by the usual marches, toyi- toying and some violent intimidation of workers less inclined to put their jobs at risk. And after losses of production, and presumably also of wages, management and unions will settle on increases above recent inflation rates.

The season might better be described as “the season of further loss of permanent jobs in the formal sector of the economy”. Wages and benefits will improve for those who keep their jobs, while management will be strongly encouraged to proceed with operating strategies that rely less and less on unskilled labour and more on capital equipment employed.

The outcomes are plain to see in the widening gap between output growth and formal employment growth that became more conspicuous after 1995, with the advent of — more onerous for management and helpful to established employees — regulation of the labour market.

The labour-saving logic practised by management is sensible enough — including its willingness to concede well-above- inflation increases rather than suffer from prolonged loss in production. The logic driving union action is less obvious to those outside the ranks of union leaders and their rank and file, who seem to appreciate a good fight with their bosses. One might be inclined, perhaps naively, to think, given the long-established employment trends, that the leaders would rather wish to encourage employment and so union membership and the dues they collect with less aggressive demands for more. Clearly there is something else at work that makes union militancy rather than co-operation the action that keeps union leaders in their jobs.

And so history repeats itself — higher real employment benefits, fewer formal sector jobs and productivity gains to compensate for more expensive labour.

Shareholders by contrast have no reason to be immediately concerned about these trends, unless they fear, as they may well, the instability threatened by the growing divide between those in good jobs and those excluded from gaining access to them. But this is an issue that the management of any one firm cannot hope to address with actions of its own. The reality is that management teams have adopted labour-saving or especially unskilled-labour-saving policies that have proved to be profitable and can be expected to continue to be profitable.

In recent years, the share of operating surpluses in the gross value added by the corporate sector has tended to rise, while employees’, in the form of wages in cash and kind, has fallen. In other words, operating profits and the share of profits in output have been improving, despite — or is it because of? — higher wages for those who hold on to their jobs.

The share of the operating surplus in the value added by nonfinancial corporations in SA and their gross cash savings is a much improved picture, especially in the form of cash flow generated that has no doubt added to balance sheet strength and added value for shareholders.

The issue confronting the firms, the unions and SA generally, is how these cash flows and profits should be best be employed — in reducing debt, paying dividends, making acquisitions or, much more helpfully for economic growth, adding to capital equipment or workers employed. The answer for SA is obvious — more jobs.

The uncomfortable truth is that management has no good reason to alter its ways. It is reacting to the fact of economic life in SA — that the real cost of capital, in the form of a lower risk premium paid by firms, has come down materially, given a most helpful political transformation. Over the same period, their real cost of hiring labour has increased materially.

It would seem obvious to all but those who find it convenient to deny the obvious relationship between employment levels and employment benefits that, in the interest of more formal jobs, it is unions that need to become less militant and more co-operative with management.

The unions need to promote employment by encouraging the adoption of policies that would make for a more flexible labour market and, as important, a much more mobile labour force that could adapt appropriately to the state of the economy. Perhaps it will take an economic policy Codesa to achieve this.

* Kantor is Chief Strategist and Economist at Investec Wealth and Investment and Professor Emeritus of Economics at the University of Cape Town.

Source: Business Day