NEWS & ANALYSIS

In defence of a jobseekers’ exemption

Gwen Ngwenya explains DA's policy on matter, and responds to criticism of it

Jobseekers’ exemption a move towards giving the unemployed a voice in labour law

Following the Democratic Alliance’s (DA) congress there has been much talk on the proposed resolution of a Jobseekers Exemption Certificate (JSEC). This resolution will be sent back to Federal Council for further discussion, along with other resolutions that were not voted on at congress due to time constraints. Regardless of whether this policy proposal becomes a policy of the party, for the sake of constructive debate it is worth answering key questions and responding to some of the feedback we have already received.

What is a jobseekers’ exemption certificate (JSEC)?

A Job Seekers’ Exemption Certificate (JSEC) is a document giving a person the right to take a job at a wage they find acceptable.

The following basic conditions apply to the JSEC:

- You have to have been unemployed for an uninterrupted period of 12 months or more.

- The JSEC is valid for only two years. (The period of validity is still being debated, there are advocates of a shorter and longer period).

Why the long term unemployed?

The National Minimum Wage Bill states that the purpose of the NMW is:

(a) improving the wages of lowest paid workers;

(b) protecting workers from unreasonably low wages;

(c) preserving the value of the national minimum wage;

(d) promoting collective bargaining; and

(e) supporting economic policy.

It is evident from the above that while the Bill aims to protect and improve the incomes of those presently in employment, it has not given adequate consideration to those who currently do not earn an income at all.

Long-term unemployment refers to people who have been unemployed for 12 months or more. In South Africa this applies to 67% of the unemployed.

There are two groups to be particularly worried about among the unemployed in South Africa. The first is young people who struggle to find their first job, and therefore to get a foothold into the job market. The second group comprises of older persons who have lost their jobs and who struggle to re-enter the job market.

Many of the long-term unemployed in South Africa last had a job more than five years ago. This phenomena is particularly acute among 50-65 year olds, 47.5% of whom have been unemployed for longer than five years. Economists have suggested that the South African government may need to accept that certain age groups, above youth age, are not just unemployed but unemployable.

A national minimum wage is likely to pose a further barrier to entry into the labour market particularly for those who struggled to find a job in the first place: youth and the long term unemployed.

There is already an employment tax incentive for employers who hire young people. If it was strengthened to a true youth wage subsidy, as the DA has proposed, this might mitigate some of the effects of a minimum wage prescription for the youth. However the long term unemployed remain vulnerable to restrictive labour legislation.

What are the consequences of long term unemployment?

Numerous studies have shown that those who experience long term unemployment i.e. being without work for one year or more, tend to earn less once they are employed, are in poorer health, and have children whose academic performance fares worse than similar workers who avoided unemployment. Furthermore communities whose residents have been in long term unemployment tend to exhibit higher levels of crime and violence.

Is it common to have minimum wage exemptions?

Internationally there is precedent for exempting certain categories of workers from minimum wage provisions. Categories for exemption or differentiation include by age, job classification, formal qualification, period of unemployment, etc.

The National Minimum Wage Panel recommended “that an exemption mechanism be built into the system. This essentially means that any employers who can effectively motivate why they are unable to meet the minimum wage level will be granted an exemption.”

In South Africa, Chapter 4 of the NMW Bill already makes provision for exemptions. As the Bill stands only an employer or an employer’s organisation may apply for an exemption from paying the national minimum wage. However the DA stresses that employment is a two-sided relationship, if employers are able to motivate for their exemption then the same right must be extended to jobseekers. In order to cater for a JSEC, the Bill would need to insert that employees also be able to apply for exemption from receiving the minimum wage.

Are there any international examples of an exemption from a minimum wage for the long-term unemployed?

One of our case studies is Germany. A minimum wage law came into effect in Germany in 2015. One of the categories exempt from the minimum wage law are persons unemployed for 12 months or longer. In Germany long-term unemployed persons receive a certificate about the duration of their unemployment from the competent employment agency or job centre. Once an individual takes up employment with more than 15 working hours per week their unemployment ends, and they lose their status as a long-term unemployed person.

Recent responses pertaining to the proposed jobseekers exemption certificate

NUMSA and COSATU

On the 10th of April 2018 the President of NUMSA, Andrew Chirwa, issued a statement indicating that, “What the DA is saying is that it wants to take advantage of the poverty and desperation of unemployed workers by allowing bosses to exploit them with slave wages for a period of two years.” COSATU’s statement on the JSEC is similar.

The JSEC does not allow ‘bosses’ to do anything, in fact on the contrary it places the exemption in the hands of the unemployed or the potential worker. If you can find a job that pays above minimum wages, or if you are able to keep looking for a job, or if for whatever reason you do not wish to accept a wage below the minimum wage then do not apply for an exemption. The JSEC is voluntary and at the discretion of the worker; therefore the antithesis of slavery and the fullest expression of worker agency.

What NUMSA and COSATU fail to answer is the following question: “If wages below a minimum wage are ‘slave wages’ then what do you call a wage of zero?” Zero is the wage which the unemployed are currently receiving, and zero is the wage which hundreds of thousands will receive if they are not given an option to exempt themselves. There is concern about the exploitation of workers, there seems to be far less concern about the exploitation of the unemployed.

What could be more exploitative and patronising than criminalising the ability of the unemployed to agree to employment on terms which are acceptable to them?

South Africa needs a solution which empowers workers without silencing the unemployed. Rhetorical gimmicks will not move us closer to a solution, and we welcome the opportunity for cool-headed policy engagement with NUMSA and COSATU.

SAFTU

SAFTU responded to the idea of a JSEC by saying that, “The proposal is also a huge threat to existing employees, who will live with the constant fear that their jobs could be lost, or their own wages cut, by an employer who reminds them that “there is always someone out there who will take your job for less than I pay you”.

SAFTU’s response essentially amounts to a concern that the JSEC will incentivise the employment of the long term unemployed over those who are recently unemployed. What they do not explain, however, is why this is a bad thing.

The JSEC might indeed have the unintended effect of incentivising employers to pick first those who are at the front of the job queue, in other words those who have been waiting for jobs for the longest time and therefore qualify for a JSEC. Because of the pernicious consequences of long term unemployment, giving a marginal advantage to the long term unemployed would be a positive consequence.

IRR

I am inclined to think we have the policy position just about right when we manage to irk both ends of the spectrum; the unions think we have gone too far, and advocates of market freedom think we have not gone far enough.

The IRR’s objection is more technical than it is principled. Essentially IRR policy fellow John Kane-Berman argues that the conditions of the JSEC are too onerous. He asks why jobseekers should have to wait a year before qualifying for an exemption, and why that exemption should only be valid for two years.

Perhaps there is an argument to be made that anybody should be able to exempt themselves regardless of period of unemployment, and that it should be valid for as long as the holder wishes. Though this is an argument to strengthen the JSEC as opposed to do away with it. It might be practical (not pragmatic) to pass a softer exemption in the first instance, then thereafter evaluate the effects of the minimum wage and the use and uptake of exemptions to influence future policy iterations.

Waivable rights vs non-waivable rights

There is a much bigger debate here about labour law and the scope of waivable vs non-waivable rights. South Africa in general tends not to have labour rights which are waivable by the employee. But it is an interesting area of research, for which laws on the minimum wage may be an apt testing ground. I will explore it briefly here but for those interested in this area of thinking a good start is Cass Sunstein’s article published in 2000, Human Behaviour and the Law of Work. This article introduces the idea of waivable rights, and its broad applications, without being blind to its shortcomings.

Why have a right or entitlement at all if it can be waived? There is sound thinking that having a default position matters. Workers are often ill-informed about legal rules or what the market is willing and able to pay for their labour (i.e. information asymmetries exist), and we know from behavioural studies that people are especially averse to losses. As Sunstein puts it in his article “default rules have a tendency to stick, in labor contracts as elsewhere. If people are initially given a right to a certain good, they are likely to ask more to give it up than they would be willing to pay for it in the first instance”.

This explains why there is reason to advocate for a default position (a minimum wage) that can be waived (i.e. exemptions) as opposed to arguing there should be no minimum wage at all. In other words without a minimum wage in place, workers are likely to place a lower value to their labour, but when a minimum wage is in place workers might attach greater value to their labour and would be more resistant to accepting a lower wage. Meaning that they will likely exhaust all options or demand greater compensation in kind in order to receive a lower wage.

A default position therefore can address information or bargaining asymmetries. If a worker knows that by default he should receive R3500 per month, he bargains from this position as opposed to trying to bargain upwards from nothing. Furthermore workers can attempt to have employer’s purchase the waiver/exemption, in other words an employee could demand something to compensate for accepting a reduced wage i.e. transport to work, meals at work, more leave etc. For some employers this could be more acceptable than a higher wage, especially if the compensation in kind is already a sunk cost for the employer e.g. there is already a vehicle travelling to the employees neighbourhood so giving them transport to work does not significantly increase costs for the employer but it does reduce costs for the employee.

Policy errs when it attempts to pick winners and losers. Setting default laws such as minimum wages may allow parties to negotiate from a more equitable basis, and waivers/exemptions allow for flexibility so that contracting parties may come to an outcome that is acceptable to both of them which is often not possible when default laws are rigid.

Gwen Ngwenya is head of the DA’s Federal Policy Unit and a member of parliament.