The nature, causes and outcomes of strike action in SA

by Jasson Urbach

The following article was written by Jasson Urbach, an economist at the Free Market Foundation.  Urbach is not affiliated with Human Action and the views of Human Action are not associated with his in any way.  Human Action reprints this article under general and not direct permission of the author.  Enjoy.

Like death and taxes, public service strike action has become a certainty in South Africa. We are in the middle of strike season and the news is once again dominated by striking masses of public employees carrying placards that read, “We say no to poverty wages” and “We say no to 6% increase”. But what are the consequences of all this strike action? Apart from the immediate effects – disruptions in services – there are more costly long-term effects that must be recognised. 

Labour unions often ignore the fact that worker productivity is the main determinant of what employers are willing to pay and a legislated increase in the price of labour does not increase worker productivity. Between 1990 and 2000, according to research conducted by Adcorp, labour productivity increased by 3.3 per cent per annum, and real remuneration grew commensurately by 1.9 per cent per annum. By contrast, between 2001 and 2010, labour productivity fell by 2 per cent per annum, while real remuneration increased by nearly 3 per cent per annum. At present, real remuneration is increasing at a rate of 13.8 percentage points above the level that can be justified by inflation and labour productivity growth. Clearly, this demonstrates that over the last decade unions have enjoyed an inordinate amount of power – when they wanted an increase, they got it. 

What is often overlooked is that increases in wage levels directly affect employment opportunities and the rate of unemployment. According to the latest data from Stats SA, 4.3 million individuals were unemployed in the first quarter of 2010 – an unemployment rate of 25.2 per cent. Include discouraged work seekers, those who have given up searching for work because they simply believe that there is none available, and a further 1.8 million must be added. The total is then 6.1 million and the rate of unemployment a more realistic 32.4 per cent. Compared to last year, another approximately 750,000 jobs were lost. 

How have labour unions achieved this unprecedented level of power? It must be recognised that in SA labour unions have played an important economic, political and social role in the transition from apartheid to democracy. When black South Africans were barred from political participation during the apartheid years, labour unions effectively became their voice. It was thus a natural development that COSATU, the biggest trade union federation in 1994 and since, became a crucial component of what is now the tripartite alliance.  With labour unions forming such an integral part of our society, one can easily lose sight of their primary role – to raise the wages and improve the working conditions of their members relative to other equally productive workers – a task they perform with great skill. In the process they unavoidably block potential competition – usually from low-skilled individuals willing to accept lower wages rather than face being unemployed and the consequence of starvation for themselves and their families. Workers within the unionised sector are secure. But, generally, inequality increases because while some individuals are earning money, millions of others are effectively prevented from entering the labour market. 

It is therefore interesting as to why in post-apartheid South Africa the ruling party continues its relationship with a trade union. The ANC needed labour unions in the 1980s and early 1990s but now it has created an economic monster. Government must start to think once again about ordinary poor South Africans – black and white. It will need to weigh up the risks of taking on vested interests against the risks of increasing unrest and disquiet among poor unemployed South Africans. The latter group is more volatile and unpredictable – the right and smart political thing to do is maximise the opportunities for poor unemployed people before civil unrest breaks out. 

The ruling political allies face some unenviable but necessary choices; if they do nothing they risk civil unrest as with the service delivery protests that seem to feature largely unemployed people; if they attempt to buy peace over a lengthy period with taxpayers’ money, they risk harming the economy and destroying unionised jobs; and if they want to open the doors for the unemployed to enter the economy, the unions object. The government must make up its mind as to whether in tackling unemployment it should look at the big picture that includes the unemployed or cater for the interests of the already employed. The future of the country depends on this.

Author: Jasson Urbach is an economist at the Free Market Foundation. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation. 

FMF Feature Article / 17 August 2010