Ivo Vegter: Good intentions, job losses — South Africa’s labour dilemma

Key topics:South Africa’s labour laws aim to protect workers post-apartheidProposed amendments raise employment costs and risk job lossesGig worker reclassification and stricter laws may worsen unemployment.Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox every morning on weekdays. Register here.Support South Africa's bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..By Ivo Vegter*.Fourteen million South Africans are unemployed. New labour law amendments threaten to increase that number.South Africa’s dark history of grossly exploitative (and racist) labour practices has produced, under the new constitutional dispensation, a strong commitment to protect workers’ rights against the capitalist class.The participation of the Communist Party of South Africa as well as the largest trade union federation, Cosatu, in the socialist Tri-Partite Alliance, has made labour a formidable force in the negotiations of the National Economic Development and Labour Council (Nedlac) that facilitates “social dialogue” between government, big business, and big labour, about conditions of employment.The intent has undoubtedly been noble, but the consequences of South Africa’s labour policies are abundantly evident in the fact that 43% of South Africans who want to work cannot find a job or have given up looking for one. Things are even worse for younger people, women, and people with disabilities..Read more:.Anthea Jeffery: South Africa’s jobs crisis demands bold labour law overhaul.The labour laws that took effect in 1995 did little to reduce unemployment during the growth years, and when economic growth sputtered and died with the accession of Jacob Zuma to the presidency, they did nothing to arrest the alarming slide towards the highest unemployment rate in the world.Major overhaulThe most significant overhaul of labour legislation of the democratic era is contained in the recently drafted Labour Law Amendment Bill and Labour Relations Amendment Bill.These amendments are wide-ranging, and include some genuine improvements.The conversion of maternity leave to parental leave eliminates a key source of gender discrimination in employment.Making it easier to dismiss probationary employees, and making it possible to extend probationary periods up to a year by mutual agreement, will make employers more likely to take the risk of employing new staff.Exempting small employers (less than 50 employees) from bargaining council wage agreements in which they did not participate and to which they did not accede is a long-overdue concession that sectoral wage deals are particularly harmful to South Africa’s biggest employers: small companies.Some dispute resolution processes have also been made more efficient and more easily accessible to employees, which is good.However, the Bills giveth with one hand, and taketh away with the other.On the side of making things worse, we have a doubling of severance pay, new regulations that protect zero-hour and on-call workers such as restaurant staff, and a provision that extends full-time employee status – with all the benefits that entails – to freelance, contract and gig-based workers.Political vanityI look forward to a message from the Daily Friend detailing the unemployment insurance, full-service medical aid, co-paid pension fund and company car they’ve arranged for me. (I sure hope they don’t cut my pay, or fire me!)There’s a particular kind of political vanity at work when legislators announce they’re “protecting workers” by making it more expensive to employ them.The proposed amendment requiring companies to classify gig and contract workers as full employees sounds compassionate in a press release. In practice, it will price thousands of people out of jobs they chose freely and on which they depend.When a delivery platform like a courier service hires a full employee rather than a contract driver, the financial obligations expand dramatically. Beyond the agreed wage, the employer must now fund unemployment insurance contributions, provident fund contributions, paid annual leave, sick leave, maternity leave, medical aid contributions, and provision for severance pay. These obligations can add thousands to the direct cost of employing someone.A driver currently earning R7,500 per month as an independent contractor may suddenly cost the company R10,000 or more, once full employment obligations are imposed.That gap is not absorbed by corporate goodwill. It won’t simply be paid out of corporate profits. It goes into a formula as part of the business model.Companies respond to cost increases the same way households do: they cut where they can.Sounding compassionateLeon Louw, founder and CEO of the Freedom Foundation, which submitted formal comments on the proposed legislation, puts it bluntly: “Doubling severance pay sounds compassionate. It is not. It means the moment you hire someone, you have doubled your financial exposure if it does not work out. So you do not hire the young woman from Soweto with no track record. You hire nobody, put more pressure on those you already have, buy a machine or deploy an AI agent. The people destroyed by this Bill will never appear in any statistics because they will never get the job in the first place.”The same logic plays out in the reclassification of gig and platform workers as formal employees, he says. App-based delivery and ride platforms are currently the only sector absorbing unskilled labour at scale, offering flexible entry-level income to people whom the formal economy has left behind. Forcing platforms to treat every driver as an employee raises their cost per worker immediately and they will respond in the only way they can: by deactivating the lowest earners. The Bill intends to protect vulnerable workers. It will instead make them unemployable, stripping away the one foothold they had.Louw continues: “If your labour is worth R20 an hour to the market and the law says you must be paid R30.23, you are not protected. You are outlawed. Ask anyone standing at an intersection looking for a day’s work whether they would take R20 an hour or nothing. The answer is not complicated, yet it is being ignored by people sitting in air-conditioned offices who will never face that choice. These rates are set without any apparent regard for what is actually happening on the streets, or for the despair that long-term unemployment breeds in families and communities across this country.”Inevitable responsesDelivery platforms and logistics companies operate on notoriously thin margins. Most other employers of contract or gig workers are similarly strapped for cash. When costs rise sharply, three responses become inevitable..Read more:.RW Johnson: From apartheid to race laws - Has South Africa come full circle?.First, headcount falls. If the platform currently uses 1,000 drivers and reclassification increases per-driver costs by 30%, the platform can afford perhaps 750 drivers on the same budget. The remaining 250 people don’t get better jobs. They get no job on that platform at all.Second, automation accelerates. Every time regulation makes human labour more expensive, the business case for replacing that labour with technology strengthens. AI-generated content, drone deliveries, automated warehouses, and self-driving vehicles all become more attractive.This legislation would accelerate that trend. The very workers the amendment claims to protect become targets for replacement.Third, smaller operators disappear entirely. A large platform can absorb transition costs and restructure. They might cut some staff, but they’ll survive. A small courier company running fifteen contract drivers will not. They close. Their drivers, rather than receiving shiny new benefits packages, receive nothing – not even the newly doubled severance package.The freedom dimensionFor a government that is founded in “liberation”, perhaps the most frustrating feature of this sort of legislation is how thoroughly it ignores what workers themselves often want.Many gig workers – drivers, freelance designers, independent tutors, casual construction contractors – chose their arrangement deliberately. A driver working for multiple delivery or ride-hailing apps simultaneously may earn more across those platforms than a single employer’s full-time wage would provide, while retaining the flexibility to manage school pickups, care for family members, or pursue other income streams.The same goes for freelancers and contract workers of all sorts.Reclassification as full-time employees doesn’t just cost companies money. It costs workers flexibility. A delivery platform legally obligated to treat drivers as employees must also control their hours, their exclusivity, their availability.The freedom that made gig work not only efficient for companies, but attractive for workers, simply evaporates. You cannot legislate the benefits of employment onto a relationship while preserving the freedoms of independent contracting. The legal obligations run both ways.EvidenceThis is not speculation. We have evidence.When California passed AB5 in 2019, imposing similar reclassification requirements, the consequences were swift and damaging.Freelance writers lost contracts when publications found compliance too complex. Independent musicians lost gig opportunities. Uber and Lyft threatened to exit the state entirely before voters partially reversed the law through a ballot initiative.Numerous contractors reported losing work almost immediately, replacing regulated employment not with better employment, but with unemployment.South Africa cannot afford experiments that demonstrably reduce the number of available jobs.Real protectionsNone of this means gig workers deserve no protections. Portable benefits schemes – where contributions follow the worker across multiple engagements rather than attaching to a single employer – offer protections without destroying flexibility.There are many ways to address genuine grievances without the blunt instrument of wholesale job reclassification.The Freedom Foundation proposes a “Job Seekers Exemption”, giving anyone unemployed for more than six months the legal right to waive minimum wage and statutory severance conditions in exchange for the right to take whatever work is on offer. Half a loaf, as Louw puts it, is better than no bread, and the long-term unemployed deserve the freedom to make that choice for themselves.These approaches require more imagination than a blanket amendment. They don’t generate the same headlines, and won’t be popular with socialist unions or dogmatic communists. But they help workers without eliminating the conditions that make work available in the first place.Economic realityMilton Friedman once cautioned: “One of the great mistakes is to judge policies and programs by their intentions rather than their results.”Good intentions never override economic reality. When you make something more expensive, less of it gets purchased. Labour is no exception. An amendment that raises the cost of engaging workers will result in fewer engaged workers..Read more:.The Economist: Forget factories. Call centres shaping up as Africa’s way to beat unemployment crisis.It isn’t always easy to measure this effect. It is easily masked, for example, by a vigorously growing economy, and it is rarely possible to establish suitable control groups to test alternative policies against one another. Economic policy does not happen in a laboratory. It happens in the real world.The delivery driver who loses platform access because reclassification made him unaffordable does not benefit from labour protections he can no longer reach. He simply loses income.That is not protection. That is performative political compassion, designed more to bribe voters and make policy makers feel better about themselves than to benefit actual people.South Africa’s 14 million unemployed workers deserve better..*Ivo Vegter is a freelance journalist, columnist and speaker who loves debunking myths and misconceptions, and addresses topics from the perspective of individual liberty and free markets..This article was first published by Daily Friend and is republished with permission.

Ivo Vegter: Good intentions, job losses — South Africa’s labour dilemma

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