Let’s try saving jobs first

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South Africa's official unemployment numbers as announced by the national statistics agency this week, although alarming, still paint a rosier picture than the reality many people experience, labour union Solidarity said on Thursday. Picture: Phill Magakoe

The dust is settling, it least somewhat, with the release of 2nd Quarter 2019 labour force statistics.  With the unemployment rate sky-rocketing to 29% and 38.5%, depending on your preference for an official or expanded definition, we are descending into a lower, new normal, unemployment equilibrium with the 30% mark within finger-tips reach in the 3rd quarter.

There is no shortage of good intentions to stem the job haemorrhaging tide, but there is a shortage of common sense. The buzz word in conferences, seminars and roundtables by state and non-state actors is job creation. The other flavour of the month is the 4.0 Industrial Revolution, but this is another debate. Emboldened people running job creation projects tell us about the sterling work they do to slip the youth into jobs, and they should.

While Spain, Greece and South Africa had very similar unemployment rates in 2012, Spain and Greece have made strides in reducing the rate of unemployment since then. South Africa’s unemployment rate has increased from 2012, when we were sitting at 24.9%, to the current 2019 rate of 29%. While most countries have brought down their unemployment levels since 2012 (after the Great Recession caused by the US sub-prime mortgage crisis), we have not been able to stop the steady increase in unemployment.

In 2008, the New Growth Path promised to create a million jobs a year, but we lost just under a million jobs in 2008-2009 alone. The recent promises of creating 2 million jobs follows the same storyline. So let’s stop promising people jobs that we cannot deliver to people.

Slow to no economic growth, currently around 0.8%, coupled with population growth outpacing economic growth, are unlikely to change the current trajectory. The hard, cold reality is that economic growth is a necessary, but not sufficient, condition to create jobs. Remember the Mbeki years when growth was ratcheted to over 5% per annum and we still failed to create jobs. Without growth, these noble efforts, at best, can only reduce friction in the labour market, but social media and online recruitment are already doing this quite efficiently. So our collective efforts are unlikely to create the jobs we desire en masse without growth.

So what do we do when the proverbial labour market is burning jobs. Common sense tells me that we got to grab water hoses and flush out the fire. What we should not be doing is having a debate on who caused the fire. And worst of all, we should not be debating what furniture we going to use after the house is rebuilt. So let’s park job creation for a moment and consider what other labour market activation tools are in the state’s toolbox. 

In 2008, the recession prompted the South African government to introduce a Training Layoff Scheme, a risk mitigation strategy, to stem job losses. The custodian of the Scheme is the Department of Employment and Labour with a myriad of other state entities playing a supporting role along the value chain.

According to the Commission for Conciliation, Mediation and Arbitration (CCMA), while a great deal of emphasis is placed on the need for job creation, insufficient attention is placed on retention of existing jobs and preventing distressed workers currently employed from becoming unemployed and impoverished as a result of job loss. Where job loss is unavoidable, more effort should be placed on the application of survival mechanisms and enhancing employability, thus contributing to alleviating poverty”.

So the Training Layoff Scheme works like this:

Step One:   A company in distress applies for Training Layoff relief to the CCMA.

Step Two:  If the application is successful, the relevant Sector Education and Training Authority (SETA) makes a provision to underwrite the training costs.

Step Three: The National Skills Fund and Unemployment insurance Fund (UIF) provides the training allowance to the worker for about twelve months. Payment of a training allowance is 75% of the basic wage up to R9 358.00 per month. The employer is encouraged to top up the remaining 25% and social benefits.

Step Four: The worker undergoes training and at the end of the training term can seek employment. If the company has strengthened its financial position, the worker is usually retained.

Unfortunately, with the notable exception of the metal, engineering and related industries, which falls under the merSETA, the Scheme has hardly been used in other sectors. The largest user of the Scheme is the automotive, tyre and metal industries. Initially, the clothing and textiles industries used the Scheme, but I think they have long passed the “pain barrier”. Surprisingly, SETAs, trade unions and employers have shown little interest to use the Scheme widely.

Admittedly, the Training Lay off Scheme is not without its problems. It was meant to be a rapid response intervention but turned out to move at caterpillar pace. Consequently, the Training Layoff “medication” killed off some companies because the waiting was worse than the disease of unemployment. Other criticisms relate to poor leadership; lack of political will; unwieldy bureaucracy; lack of accountability by managing agents; and weak implementation, to list a few. Many firms proceed to retrenchments as the first choice due to the inherent problems in the Scheme.[1]

But with muscular management, these problems are highly solvable. The fact that the Scheme is not enshrined in legislation means that changes can be made “on the run”. The cost of creating a job, any job, is considerably more expensive than saving a job in South Africa. Where job losses are unavoidable, more effort is needed to applying job retention mechanisms.

Our research has proposed a few recommendations that can turn the Scheme from a “no go” to a “must go”. The Scheme should be managed entirely by the CCMA; the structural design flaws should be rectified; greater counselling and support for distressed workers; cut out the bureaucracy; hold state role-players and training providers accountable; widen access to more workers, and so on.

Many middle-income countries with active labour market policies have rebounded from the recession in 2008. South Africa is an outlier in this respect. Hence, there is a strong need to learn from countries which have implemented schemes to support retrenched workers. Whereas the traditional unemployment insurance system, as in South Africa, concentrates on remedial measures in post-factum by giving cash benefits to the unemployed, Malaysia, South Korea and Sweden institutionalise preventive measures against unemployment as well by adopting various measures for active labour market policy.

These countries have designed systems that not only help unemployed workers by giving them cash benefits but also enhance employment stabilisation and employability of workers through skills training within the framework of the Employment Insurance System (EIS). Thus, these systems are referred to as the employment insurance system (EIS) rather than an unemployment insurance fund (UIF).

Countries that offer retrenched workers services such as effective job search, counselling, job fairs, assistance for writing curriculum vitae (CV), labour market information and job database tend to be successful with helping retrenched workers find employment. Besides, most of the schemes offer programmes to encourage insured unemployed workers to upgrade their skills and move to labour absorbing industries. They are usually provided with financial assistance to enrol in training programmes and receive benefit extensions if the training lasts beyond the end of the UIF benefit period. So remember, no more talk shops. Let’s put rubber on the road.

 

Professor Hoosen Rasool is a labour market analyst at FR Research Services. These are extracted from a Benchmarking Study of Models of Training Layoff and Risk Mitigation Schemes.