Sandra Swart
2013015611
Labour Unions
Table of content:
Introduction
Extent to which organised labour is either a catalyst or a clog to economic performance
Economic growth
Unemployment
Poverty
Inequality
Discussion of the policy suggestions that can be put forward
Conclusion
Bibliography
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Policy suggestions:
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Introduction:
South Africa and trade unions have a history that accelerate back to the 1880's, where it played an important role in transforming the political system of South Africa. It was established during the Apartheid era where trade unions showed the advantage of bargaining with employers through their representative unions. The main goal of the trade unions was to promote the rights of its members regarding wages and benefits to the workers. (Webster, 2007)
In the modern days trade unions are an key force in South Africa, with 25,3% of the formal work force being represented by trade unions. Congress of South African Trade Unions (Cosatu), the Federation of Unions of South Africa (Fedusa), and the National Council of Trade Unions (Nactu) are three well known trade union federations which function in different sectors of the economy. (Anon., 2015)
In this paper I want to establish whether trade unions are either a catalyst or a clog to the economic performance with regards of focusing on unemployment, poverty, inequality and economic growth.
Influence of unions on employment:
Extent to which organised labour is either a catalyst or a clog to economic performance:
In a perfect market where workers are handled according to required regulations, trade unions would not be necessary. The Labour Relations Act (LRA), Act 66 of 1995 main focus was to promote economic development, labour-employer relationship, social justice and a workplace where democracy is established. (Anon., 1995)
This is however challenging because of the competiveness of the markets, businesses wants to be as competitive as possible with higher production levels at lower costs. Sectors which are less unionized are believed to have better results in advancing the economy, than more unionized sectors.
The main roles of trade unions are to negotiate wages and working conditions, manage relationships between employer and employee, help settle their problems, raise new demands on behalf of its members, takes action to implement the terms of collective bargaining. (unknown, 2007)
To establish the effect of trade unions on the economy, we need to analyse the effect of trade unions on unemployment, poverty, inequity and economic growth:
Economic growth:
Differences in time, sectors and countries has an effect on productivity and the performance measures of unions. Differences of unionized and nonunionized sectors play a big role in establishing the effect trade unions have on economic growth
Labour unions have a negative effect on the economy growth of South-Africa. Unions want more wages for their members but output levels productivity stay the same, so the cost to the company increases but the profitability decreases. The impact of loss of productivity due to strikes are estimated to increase from 2.3 million in 1998 to 3.1 million in 2011(pienaar, 2013).
From the graph above, one can see that from December 2013 the economic growth rate was 4.9%. There was a decrease in South Arica's economy growth to 3.3% in July 2016.
Unions don't just claim a certain percentage of the company's profit but also a portion of the quasi-rents that was received on the long-lived capital, therefor unionized companies investments of innovative and physical capital decreases. Capital growth is slower due to a decrease in sales and employment.
The influence of strikes are not just bad for the productivity losses, but it also decrease the investors' confidence in South Africa. The consumers' confidences decrease and it causes the rand to depreciate against other currencies (Smit, 2000). Without investors funds being invested in South Africa the economy will not have funds to develop and grow the economy.
A decrease in profit of the organization will lead to workers that are set-off and that result in an increase in unemployment. In a competitive market where unionized companies has a weak economic performance, relative to non-unionized there will be a decline in membership of trade unions. (Ludwig,2008)
The solution?
Internal industrial relations policies will help workers express wishes and have a collective voice. In overcoming problems in the workplace union bargaining are more effective than individual bargaining. Productivity in the workplace are often associated with an effective collective voice.
The union's bargaining power is restricted in a small portion of the industry, unless it creates value as well as tax income. If the minimum wage increase the production output must increase in order that profitability of the organization don't decrease because of the costs that increases. If productivity doesn't increase the union should have no bargaining power in competitive industries. (Ludwig,2008)
Unemployment:
In South Africa more than 6 million people are unemployed. According to Stats SA 191000 jobs were lost in the 2007 global recession. The number of trade union members has decreased by 39 per cent from 485 in 2001 to 198 in 2009 and the union membership has decreased from 35.2 per cent of total workers in 2001 to 24.6 per cent in 2009. Finance and utilities sectors has the largest decline in memberships, but less unionised sectors like the private service sectors has grown. From 1994 to the mid-2000s the union movement expansion contributed to job-losses in highly unionised manufacturing sectors. (Anon., 2010)
Studies from the University of Cape Town, showed in 2008 that unionised dispute resolution mechanism were ineffective and made employees leave unionised firms for less unionised firms, due to strikes and loss of earnings. In 2009 alone, a total of 2.9 million man days were lost due to strikes.
In the diagram above it shows that there was an increase of 2.1% from July 2013 to July 2016.
In the union-dominated sector, employees don't want to expand due to facing challenges of unrealistic demands of unions. In 1996, Peter Moll, predicted constraints on the labour market, including union movement, would cause unemployment. Employers would rather exchange capital for labour in the short-term, and invest in capital intensive technology in the long-term. (Anon., 2010)
Is their light in the tunnel regarding employment?
The outlook on employment in the third quarter shows that unemployment would increase. The partnership between ANC and COSATU forces the government to meet the demands of unions at a cost of unemployment. One can predict that the ANC-led government will benefit the interest of unions instead of unemployment. Rather motivating most South Africans to work, government is giving away social grants demotivating people from working and making them dependent on the government.
In the table above it is a clear indication that there is an increase in the dependence of people on social grants. The most alarming factor is that the youth has the very high percentage of dependant on social grants.
Stats SA's general household research (2010), shows that 28,4 per cent of people in SA are dependent on social grants. Two thirds of the population in provinces like Limpopo and the Eastern Cape is depending on social grants, this correspond with the high unemployment figures in the provinces.
In 1997, Macun, recognized in his research that the collective bargaining and inefficiencies has had an increased cost in the bargaining process and made it less attractive for members of unions. With increasing levels of unemployment, workers would rather do their work than to participate in union movements. The average wage settlements in 2009 was 9,3 per cent and inflation 7,1 per cent, and in 2011 workers have been settling for wages under the inflation rate. (Anon., 2010)
Is their good news regarding unions and members?
Unions has discovered that workers would not follow them blindly in bargaining's with employers. Workers have become more aware of limitations of labour unions in the work environment. The acknowledgment of corruption and lack of accountability was brought forth by workers. While Private sectors employers have established the importance of respecting employees make better business.
The important lesson can be learned from the decline in union membership that the rights of the unemployed are more valuable than protecting unionised interest at a cost of work. Most employees would rather work for a lower wage rate than being dependent on a government grant.
If the focus is placed on the entrepreneurial potential of the unemployed, labour market has to decrease and statuary protection must be lowered for unions, work for the unemployed would be possible. By decreasing in trade regulations the government can improve SA's economic wellbeing, this will result in an increase in employment opportunities in SA. (Anon., 2010)
Unemployment has a direct link with poverty.
Poverty:
According to the World Bank stats of 2016, more than 50% of the world's population lives on less than $2.50 a day. A child dies every 3.5 seconds of poverty. 25% of people live without electricity, one billion people can't read or write their own names.
Can poverty be reduced by a minimum wage policy?
Allegedly the answer would be yes, the main reason for a minimum wage recommendations (No.135) is to fight against poverty and to secure the fulfilment of employees and their family's needs. The Poverty Reduction Strategy Papers (PRSP) has been criticised and questioned in developing countries. In certain middle-income developing countries with low levels of minimum wages, the minimum wages might have a greater impact on the living standards of poor people.
The government investments should focus on people in need, including employees in the informal economy. Less Fortuned workers are worse off with a minimum wage where, more fortunate workers are benefitting from it.
According to some critics, in certain circumstances the minimum wage could lead to an increase poverty. The argument states that when the production cost increases, the minimum wage pressure the employers to reduce the number of employees. As a result of formal workers losing their work because of the minimum wage, they end up working in the informal sector for less money.
In fig33.15 the increase in minimum wage from W to W1 cause the quantity of labour to decrease from N to N1.
Recalling some facts, a very alarming feature of minimum wage figures are head to head with levels of poverty(less than $1 a day) in developing countries. With this in mind, unions still fail to protect the weakest workers, because of the minimum wage fixing acts like an substitute for collective bargaining. Unions argue that if there is not a high enough minimum wage that the formal workers are not protected. An increase in the collective bargaining around wage issues is a necessity for the minimum wage to act as a solution for poverty.
Poverty can be fought in three ways with caution, to promote the lifestyles of the employees.
1) In exchange for work, the most workers should qualify for a minimum wage. Workers that loosed their work should not have a problem finding another job, because of the growing economy and numerous job opportunities.
2) There should be a larger increase in minimum wages than what there is in price levels.
3) Compliance by the employers with regards to minimum wages and regulations indicates organized consulting during wage fixing process and a functional mechanism is in place.
There are very few evidence that a minimum wage are an effective tool to fight extreme poverty, but it can have an effect on non-extreme poverty.
Inequity
There are two main inequalities in South Africa that I want to address:
Income and racial inequality:
One of the main focusses of trade unions is to reduce the inequality gaps between the people of South Africa. The inequality measure of income is estimated by the Gini coefficient, it range between 0 and 1. The higher the inequality distribution of income the closer it is to 1. With initiatives that workers with a lower wage distribution gets higher union payments than workers with higher end wage distributions. Wage increases for lower income workers narrows the gap between rich and the poor. The Gini coefficient of South Africa have weaken from 1993 with 0.672 to in 2009 to 0.678. (Chapman,2012)
Why South Africa inequality in income is so high:
South Africa's income inequality can be described to Apartheid and racial discrimination. The income inequality can be pin pointed to certain factors:
Apartheid can be blamed for loss of assets like land, individual asset bases, communities and households were neglected by ill health.
Income inequality is still in a high state, but this nature has changed. Distribution in the inter-racial income has become better since the democracy. Group distribution has gotten worse. Racial income inequality has softened. Income inequalities increase high levels within the Blacks shows a black middle class growth through incorporating successful BEE policies.( Chapman,2012)
In the graph below it indicates the differences in race groups and income groups between 2001 and 2011. The graph shows that there are an improvement in income among groups, but white people are still the group that have the largest proportion of income.
How can equality be established in South Africa:
1) Effective tax policies can be a tool in reducing of income inequality. The main idea behind it is to take money from rich people and to give it to the poor. It does not only help with establishing equality in the economy, but raise income to invest in transfers, education, infrastructure and health to increase social equality. A trade-off exists between growth and equality is an outcome of income taxation, not only personal tax but also the whole tax regime should be looked at.(Carter, 2009)
2) Policies to reduce unemployment. Government can pay a premiums to employment schemes.(Coetzee, 2010)
3) Kind benefits, like education, health services, must be free or the price must be marked down. This will have an effect on the dependable income of people and will narrow the gap between poor and rich.
4) Cash benefits, to help people with low or null income. Non-contributory rewards are like income aids, child support, and housing benefits. There are certain tests to see if people need this benefits. People don't have to qualify for child support aids, it is available to all people with children.(Coetzee, 2010)
Conclusion:
Through my research I have established that trade unions have a negative effect on the economy and the people of South Africa. Through trade unions collective bargaining, the unemployment rate increases, economic growth decreases, poverty worsens. Luckily the inequality in South Africa decreases. Trade unions are a good concept, but has failed to effectively promote the members of the unions and the economy.
Trade unions should review their mission statements and renew their strategic approach to settling disputes. Certain regulations should be set in place for the handing of bargaining's with the different sectors. Trade unions should have less power, and behold accountable for their actions. Strikes should be regulated and policies should be in place to establish controlled strikes.
If trade unions are managed effectively, it can be beneficial to South Africa's people and the of trade economy.