2012 SACCI SURVEY ON LABOUR REGULATIONS
Introduction
From Friday 10 to Friday 17 February 2012, SACCI administered a survey to our members regarding labour market conditions and the role of labour regulations in job creation. The survey and its results are meant to provide an indication of the problems faced by business across the various economic sectors and is certainly not meant to be a definitive study on business attitudes. Having said that, the sample of observations is fairly representative of SACCI's members across the country.
We find that economic conditions are the biggest overall hindrance to employment creation, followed by burdensome dismissal process in the current labour legislation. Within labour regulations specifically, we find that the burdensome disciplinary process is the largest obstacle to employing more people and that a simplification of the disciplinary process is the most preferred change to current labour legislation.
The results of the survey differ between smaller firms with less than 50 employees and larger firms with more than 50 employees. The general finding is that smaller firms are more affected by the administrative burdens of labour legislation than larger firms, which is an intuitive finding.
These results have two implications. First, the emphasis on the burden of processing dismissals and disciplinary measures as an obstacle to employment creation would suggest that a slight amendment to the current labour regulations to simplify the process would lead to greater employment creation.
Second, smaller firms are more vulnerable to the administrative costs associated with labour regulations, which strengthens the argument in favour of the simplification of the disciplinary and dismissal processes.
Sample design
The survey was set up as a 5 question multiple choice questionnaire with space for general comments at the end. The questions were:
1. How many employees are currently in your service?
2. What is currently the biggest obstacle to employing more people?
3. In labour regulations specifically, what is the biggest obstacle to employing more people?
4. What change to labour regulations would you support the most?
5. What regulatory changes need to be made to labour brokers (i.e. labour outsourcing)?
Discussion of results
The majority of respondents (38.4%) are relatively small with a staff contingent of less than 10, followed by firms with 11 to 50 employees (23.3%) (See graph 1). These two categories are added together in later analysis to compare labour market perceptions against firms with more than 50 employees. In this regard, 61.6% of the sample is firms have less than 50 workers and 38.4% of the sample consists of firms with more than 50 workers.
Graph 1: Labour force size of firms (by employees)
The central question of the survey focused on the obstacles to employment creation and possible solutions (See graph 2). The results show that 42.5% of respondents placed economic conditions as the biggest obstacle to employing more people, followed by labour legislation (26%), a skills-shortage (23.3%) and high wage demands (8.2%).
The high incidence of economic conditions as an obstacle to employment creation would suggest that the South African business community is less than optimistic about current business prospects. An economic upswing would arguably invert the responses to place wage demands as the most significant obstacle to employment, i.e. business wants to employ more workers but the higher demand for labour has pushed up wage demands to unaffordable levels.
Although, the low incidence of wage demands is welcome and indicates that South Africa has some "breathing room" in terms of wage increases impacting on the international competitiveness of labour, this could turn around once economic conditions improve.
From a policy perspective the most pertinent obstacle is of course labour legislation. The 26% of businesses who would rather forego employing another worker because of the cost and time spend on administering possible disciplinary processes are far too high. In broader terms, a quarter of possible new jobs are not created due to the overly burdensome disciplinary processes.
Graph 2: The biggest obstacle to employing more people
As mentioned above, labour regulations fall primary within the policy design whereas market factor like demand for products and services are largely cyclical and rightly within the realm of individual labour demand. The survey therefore went to interrogate further into labour regulations.
As expected from the results in question 2, the majority at 45% said that the disciplinary process from first warning to the CCMA is overly burdensome and the biggest obstacle to job creation within labour regulations (See graph 3). It is welcome that 30.1% of the respondents felt that labour regulations did not impact on their workforce expansion; this indicates a moderate view on labour regulations rather than a sample bias.
These two options cumulatively represent more than 75% of the sample, which indicates that the opinion of the sample clearly falls into two main camps: labour regulations do not play a significant role as obstruction to employment creation, and the statutory disciplinary process hampers employment creation.
The low importance given to the risk of protracted industrial action (5.5%) is surprising given South Africa's high incidence of industrial action and the subsequent man hours lost. This relatively low score could be explained by either three arguments, 1) employers have been able to adapt to the threat of industrial action and therefore do not see it as large a risk anymore, 2) 61% of the companies employ less than 50 workers suggesting that unionisation and as a result industrial action would be less prevalent or 3) the duration and frequency of industrial action is less significant than anecdotal evidence would suggest. Given the statistical composition of the sample, option 2 might be the most correct argument.
Graph 3: The biggest obstacle in labour regulations to employing more people?
After getting a view on the general business view on the South African labour market, it is useful to interrogate whether there is a difference in business perception between smaller and medium-to-large businesses (See graph 5).
The most significant difference in emphasis between smaller and larger firms is in employment creation is the disciplinary process and skills shortages respectively. Smaller firms have less excess capacity and in-house legal skills to be able to deal with labour disputes and the disciplinary process internally, which make for an intuitive result.
The higher emphasis placed on skills deficit in larger firms is arguably due to a more hierarchical structure with defined and specialist roles for each worker, that assumes a specific skill level beyond what is necessary for smaller firms where employees do a larger degree of cross-functional work.
The difference in the disproportionate burden of the disciplinary process between smaller and larger firms is again shown in the segmented data on question 4 (See graph 6).
Altogether 53.3% of the firms with less than 50 employees feel that the disciplinary process is the largest obstacle within labour regulations to greater employment creation, whereas only 32.1% of larger firms share this view. In fact 42.9% of larger firms feel that labour regulations have had no effect on employment creation, in contrast to the significantly lower 22.2% of smaller firms who share this view.
The general result of these two differing responses is that smaller business is much more sensitive to burdensome labour regulations.
Graph 4: Differences between small and medium firms on obstacles to employment creation
Graph 5: Differences between small and medium firms on labour regulations obstacles
Graph 6: Change to labour regulations most supported
The survey narrows to the most preferred change to general labour regulations in order to increase the flexibility in the labour market. Unsurprisingly, 50.7% of the respondents preferred a simplification on the statutory disciplinary processes, followed by 19.2% who would support a more favourable B-BBEE rating for education grants and bursaries (See graph 7). These results reflect a consistent message from the broader business community that the disciplinary code creates a significant hurdle to employment creation.
Graph 7: Regulatory change to labour brokers most supported
The final question focussed on labour brokers and what kind of regulatory intervention, if any, was necessary. Labour brokers offer a service to firms who would otherwise need to employ staff on a permanent basis. The recent increased usage of labour brokers would suggest that this service offers an alternative to the regulatory burden associated with permanent employment. The labour broker industry has not been without controversy and some stakeholders have called for their criminalisation based on anecdotal evidence of exploitation.
The questions were posed with a specific view that matched the policy intervention. For example, the first option read: "Criminalisation: labour brokers exploit workers". If the respondent was in favour of criminalisation of labour brokers, it follows that this should be grounded in a particular negative view of the sector.
The majority 49.3% of the sample felt that labour brokers merely provide a service and should not have further regulations imposed on them (See graph 8). This is followed by 26% who felt that the industry should be regulated in order to stop potential exploitation taking place. Only 5.5% of the sample indicated that labour broking should be criminalised.
These two responses signify a fundamental difference in views towards the labour broking industry. A proponent of regulation would implicitly believe that the practice of labour broking is not by nature exploitative, but that some regulation is in order to rein in problematic problems on the periphery. A proponent of criminalisation would however believe that the practice of labour broking is by nature exploitative and that there is no solution other than a blanket criminalisation.
An argument raised against the criminalisation of labour brokers was that the current set of labour regulations adequately provides for instances of exploitation, but that a lacking enforcement capacity allows transgressors to continue unabated. The obvious solution would therefore be to improve the capacity of the Department of Labour (DOL) in order to police the market. This proposal received 19.2% approval from the sample.
Conclusion and policy proposal
The survey points to the need for a simplification of the statutory disciplinary processes in order to incentivise employment creation in the SME sector. This simplification can be designed in a number of ways to ensure that the worker enjoys the same level of protection but with the benefit of easier turnaround in disciplinary processes.
Issued by SACCI, April 12 2012
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