After you have worked through this section of the learning unit, you should be able to:

  • describe and identify labour and the income that is derived from the ownership of labour

Read through the following extract from Stats SA about job losses in South Africa:

More bad news for job-seekers

More bad news looms for job-seekers as the formal non-agricultural sector of the economy reported a decline of 34 000 jobs for the quarter ended June 2017. This is according to the latest Quarterly Employment Statistics (QES) report released by Statistics South Africa. The QES data tracks changes in employment at the establishment level, and thus provide a picture of aggregate employment growth statistics.

There was a decline in employment in both the March 2017 and June 2017 quarters. The QES recorded consecutive losses of 41 000 jobs and 34 000 jobs over the last two quarters, respectively.

The manufacturing industry reported the highest job loss of 13 000 employees. This was followed by losses in the construction industry with 11 000 jobs, the community and social services industry with 10 000 jobs, the transport and communication industry with 5 000 jobs and the business services industry with 1 000 jobs.

However, the mining industry created 3 000 jobs in the quarter ended June 2017. This is the second quarter in succession where jobs were created in the mining industry. The trade industry made a recovery of 3 000 jobs in the current quarter from a decline of 30 000 jobs in March 2017. Job levels in the electricity industry remained unchanged.

Gross earnings for the quarter ended June 2017 continued on a downward trend with a decline by R2,3 billion. This follows a decline of R19,5 billion in the previous quarter. The total amount of gross earnings measured for the quarter was R585 billion. This is down from R587 billion.

The decline in earnings was driven by the business services industry with a quarter-on-quarter decrease of R13,6 billion. This follows three successive quarters of positive growth in earnings. Despite the overall decline, earnings in the mining sector increased by R182 million, manufacturing increased by R144 million, electricity increased by R44 million, construction increased by R469 million, trade increased by R970 million, transport increased by R1,8 billion and community services increased by R7,4 billion.

Average monthly earnings were measured at R18 666 in the formal non-agricultural sector of the economy for the June 2017 quarter. This is an increase of 1,7% from the previous quarter and an increase of 1,4% from the same quarter in 2016.

According to economists, an important cause of job losses is the inflexibility of the labour market.

The following is an extract by Dieter von Fintel (2015) on the issue of the flexibility of the South African labour market.

How flexible is the South African labour market in the short and long run?

The inflexibility of the labour market has become a common scapegoat to explain the low rate of employment and the muted growth of (especially small) firms in South Africa. It is argued that employee-friendly labour laws put workers in a strong position vis-à-vis employers to bargain for high wages despite a crippling unemployment rate and a low growth of labour productivity (Fedderke 2012; Klein 2012). The World Competitiveness Report of the World Economic Forum (WEF) consistently rates the SA labour market among the least efficient in the world. Many argue that liberalizing the labour market to allow greater wage flexibility and to reduce the constraints on firing workers would go a long way towards solving the unemployment problem.

He then reaches the conclusion that

… new evidence shows that only in specific contexts (unionized workers in the short run) does wage rigidity restrain the ability of the labour market to absorb workers. In the long run, wages are much more flexible and structural factors explain more of the unemployment puzzle. The policy debate on unemployment and wage flexibility needs to take these subtleties into account.