Recipe for mass unemployment

We again bring your attention to the government and its alliance partners’ proposal to ban labour brokers starting in February 2010 (Financial Mail, Seeing Red. Nov 13). This is a recipe for chronic mass unemployment. Human Action will in this post briefly highlight the facts of the matter and mention the implications of such a policy.

Firstly, a ban on labour brokers will destroy ‘decent’ jobs in an attempt to create ‘decent’ jobs. This fact alone shows that Cosatu’s real goal is not to create ‘decent’ jobs, as its representative Mduduzi Mbongwe states in the FM. Secondly, the idea of a ‘decent job’ is subjective, and is therefore arbitrary in economic analysis. Being a dump-truck driver in Switzerland could be considered ‘decent’ but less so in South Africa. It depends on the peculiar mentality of the community concerned. Thirdly, labour broking is the free market’s way of dealing with restrictive government regulation of the labour market. Demand for labour broking has grown, precisely because the labour market is too rigid. Necessity is the mother of invention. Fourthly, however bad a hand the worker has been dealt, by “removing the middle man” (Yengeni of the ANC’s intention), the government will be taking away the worker’s single best alternative. He will be left with no job, and no other option of finding work.

As a result, businesses are back to square one where they don’t want to directly employ, because when you can’t fire, you think thrice before you hire. So there will be a double-whammy of job losses. This will exacerbate the unemployment problem and most certainly lead to a “jobLOSS recovery.” Furthermore, in so far as the human labour market becomes more rigid, business will employ more technology to replace human labour.

The risk is also run that our country’s real job creators are driven out the country entirely. These people are the engines that drive progress. Consumers demand the highest quality at the lowest price, and in South Africa business is forced to pay the highest price for the lowest productivity (see chart below courtesy of the Reserve Bank). The invisible hand of Adam Smith will prod entrepreneurs to migrate to a place of economic freedom where they can prosper.