The Southern African Clothing and Textile Workers' Union (Sactwu) submission to the Standing Committee on Finance regarding the Draft Employment Tax Incentive Bill, October 16 2013
1. The Southern African Clothing and Textile Workers' Union (SACTWU) is opposed to the draft Employment Tax Incentive Bill (ETIB), and calls for it to be withdrawn. In this position we are aligned with the position of our federation, the Congress of South African Trade Unions (COSATU)
2. For reasons of brevity, we do not substantiate all our concerns about the Bill herein, yet we note that they include, amongst other things, that:
2.1. The Bill has proceeded to Parliament without proper consultation and without approval of social partners;
2.2. The Bill runs against the grain of the Youth Employment Accord;
2.3. The Bill is poorly conceived and poorly drafted;
2.4. The Bill includes additional employment subsidy mechanisms (such as for Special Economic Zones and designated industries) about which social partners have not been consulted, and which are highly problematic;
2.5. The Bill is likely to lead to negative employment consequences which will outweigh any positive employment consequences which the Bill is purported to bring. These include, amongst others: displacing older or unsubsidised workers with subsidized workers; creating a multi-tiered labour market in respect of both wages, benefits and overall employment conditions; and precipitating a downward pressure on wage bargaining
3. These concerns, and others, have been well-captured and articulated in the submissions provided by COSATU and our sister union, the National Union of Metalworkers of South Africa (NUMSA). We do not repeat herein what has been raised in those submissions. Nevertheless we fully support the contents of COSATU's and NUMSA's submissions;
4. SACTWU's submission is intended to supplement COSATU's and NUMSA's submissions with an evidence based critique of the false assumption underlying the very foundation of the Bill: that if employers are provided with lower wage costs, this will necessarily stimulate employment and lead to the creation of jobs;
5. SACTWU has extensive experience relating to this issue stemming from initiatives in the clothing and textile industry in which special wage dispensations were provided to employers, and which were intended to create employment. Significantly, all of these initiatives have failed.
6. Our experience in this matter suggests that there are a multitude of factors which effect employment levels - and wage-levels are not high up on the list. Hence a low wage-cost intervention to create youth employment (or any other employment) is likely to fail. We summarize some of these initiatives below.
7. It is well known that the South African clothing, textile, footwear and leather (CTFL) manufacturing sectors have been under intense pressure from imports for more than a decade. The consequence has been enormous levels of job losses in the CTFL industry. In this regard more than 100 000 workers have lost their jobs in the clothing and textile industry since 2002 alone.
8. The main causes of job losses in the clothing sector is not wages, but a range of other factors - primarily the fast-tracked tariff reduction regime introduced under GEAR in 1996, and the inappropriately low binding levels of those tariffs. This was compounded by high levels of illegal imports and serious instances of widespread under-invoicing at our ports of entries.
9. Nevertheless, employers in the industry, and other sections of Capital, have regularly (and incorrectly) blamed job losses on the level of local wages, claiming that these wages are relatively high and present an obstacle to securing orders locally, and creating local employment
10. In the context of extreme job losses, and through the process of negotiation and compromise, and at the insistence from CTFL employers that a special wage dispensation will stimulate local employment, SACTWU has been prepared to experiment with special wage dispensations. At a minimum, this has included:
10.1. Creating national wage-flexibility dispensations
10.2. Creating factory-level wage dispensations
10.3. Creating entry-level employment wage dispensations
11. Though these special wage dispensations differed from those presented in the ETIB in some senses (i.e. they were not subsidized wage dispensations), their effect for employers was exactly the same: lower employment costs to be carried by employers.
12. Significantly, our experience is that while all of these special wage dispensations reduced the costs of employers to create jobs, none of these dispensations have led to positive job consequences. We illustrate this below with examples.
13. Examples of national wage-flexibility dispensations:
13.1. At the assurance of employers that lower wages would stimulate employment in the clothing sector, SACTWU agreed to the creation of a highly differentiated and flexible wage structure in the Clothing Collective Agreement, negotiated through the clothing bargaining council. The clothing sector's wage agreement prescribes at least 220 different wage levels for the benchmark job category (machinists) alone.
13.2. For instance, wage rates differ between Cape Town and Caledon, as do those between Johannesburg and Bronkhorstspruit, and those between Durban, the South Coast, isiThebe and Ladysmith. Further differentiation exits depending on depending on experience and manufacturing operations type. This makes the clothing sector's wage structure one of the most flexible in the country.
13.3. To the extent that this flexible wage structure allows employers to pay workers' lower wages in some areas than in other areas, it is comparable to those presented in the ETIB. After all, the ETIB creates a similar differentiated wage effect for employers.
13.4. Nevertheless, this differentiated wage effect has done very little to arrest the very high levels of job losses in the clothing sector over the last decade or so. It has certainly not led to job growth in the clothing sector;
13.5. More worrying is the fact that a differentiated wage structure - where employers are presented with the option of carrying lower costs of employment rather than higher costs of employment - has led to the phenomenon clothing jobs often ‘bleed' from higher wage areas (such as metros) to lower wage areas (such as non-metro areas). In other words, jobs which cost employers more are replaced by jobs which cost employers less.
13.6. SACTWU believes the same phenomenon is likely to occur with the employment tax incentive: where unsubsidized jobs which carry a higher cost for the employer will be replaced to a large extent by subsidized jobs which carry a lower cost for the employer. We agree with COSATU and NUMSA that employers will use creative mechanisms to circumvent measures taken by the State to disqualify employers who practice "unfair" dismissals to replace existing workers with new workers in order to access the employment tax incentive;
13.7. It is important to note that not even the migration of clothing jobs to lower wage areas has necessarily stimulated job stability and job growth in the clothing sector in those areas. In this regard, SACTWU closely records the levels of job losses in the sector and has found that there are proportionately more job losses in non-metro areas where wages are lower than in metro areas where they are higher.
14. Examples of factory-level wage dispensations:
14.1. In 2000/2001 and 2007/2008, SACTWU agreed to cut the wages and total labour costs at two textile companies, Union Spinning Mills (USM, in Port Elizabeth) and Frame Textiles (in Durban) respectively.
14.2. SACTWU's wage concessions were based on the assurance from employers that if they carried lower employment costs, their companies would be more competitive, would prosper and hence employment to be sustained
14.3. At USM, SACTWU agreed to a total labour cost cut of 30%. At the time, USM employed around 1 100 workers
14.4. At Frame Textiles, SACTWU consented to workers' wages being cut by 15%. At the time, the company employed over 1 000 workers
14.5. The reduction in wages effectively provided employers with reduced total costs of employment. According to the logic of the ETIB this should have had positive employment consequences. However the actual consequences were negative, not positive.
14.6. In the case of USM, the company closed in 2004. For its part, Frame Textiles closed in 2009. In total, over 2 100 workers lost their jobs. In other words, allowing the companies to reduce their wage costs did not create better conditions within the companies to stabilise employment or create more jobs.
15. The entry-level employment wage dispensation
15.1. In 2010, at the assurance of employers that lowering wages would allow them to birth at least 5 000 new jobs within three years, SACTWU agreed to a landmark 30% lower entry-level wage for clothing workers
15.2. The agreement was heartily endorsed publicly by conservative and liberal sections of South African society - many of whom are similarly endorsing the ETIB. Their claim, like the claim of clothing employers, was that the lower entry level wage would stimulate job creation because it would allow employers to carry a lower cost of employing workers
15.3. Instead, the entry level employment wage dispensation proved to be a monumental failure. Not only was it completely unable to catalyze the creation of new jobs, and it failed to meet its modest job targets, but it was so ineffective that clothing employers themselves cancelled the agreement early in 2012
16. The three examples explored above are by no means all the examples which SACTWU can provide regarding the fallacy that lowering the cost of employment for employers necessarily results in job creation. If required by the Committee, SACTWU can provide further examples
17. It is SACTWU's experience that all three of the wage dispensations explored above failed because they falsely assumed that employment can necessarily be stimulated by lowering the cost of employment carried by employers, rather than by addressing deeper structural problems in industry and/or the economy in general
18. Indeed, the only instance in which SACTWU has witnessed positive employment consequences in the industry has been since national government started its enlightened and effective industrial policy intervention into the economy (and into the CTFL sectors). This has taken place since 2009, after the new administration was elected at the 2009 General Elections. The consequence has been that over the last two years or so, the CTFL sectors have witnessed a substantial degree of job stabilization - with fewer job losses occurring than was previously the case. This initiative is working because it targets structural fault lines in the economy and in industry
19. It is SACTWU's experience that a low wage-cost intervention is highly unlikely to offer positive employment consequences. This, coupled, with the many negative outcomes for workers amply outlined by COSATU and NUMSA (with whom we agree on the matter), leads us to call for the Bill to be withdrawn in its entirety.
Issued by Deputy General Secretary of SACTWU, Chris Gina, October 16 2013
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