CDE media coverage on Business Day liveThe interests of workers, small businesses and the effects of laws that make hiring and firing difficult must be considered more seriously.

Speaking to Business Unity SA (Busa) at the beginning of January, President Cyril Ramaphosa said business leaders had never offered a cogent case to him for why and how labour laws should be changed.

Labour law reform must reflect the reality that SA’s economy is less and less accommodating of small firms, that this is one of the reasons it has grown slowly, and that economic activity is overly skills- and capital-intensive. The reform agenda must also be premised on a recognition that labour market reform that reduces the living standards of the millions of blue-collar workers who are currently employed would be all but impossible politically.

It is possible to calibrate reforms so the effect on existing workers’ living standards is minimised. And if these reforms are co-ordinated with bold growth-enhancing measures, the country might simultaneously see an economic expansion that would accelerate employment growth.

Achieving this requires focusing reforms on those aspects of the labour market regime whose impact on small and new firms is greatest, and which as a consequence make it harder for new firms to enter the economy or thrive in it. Reform needs to focus on making possible the emergence of new, labour-intensive activities that would increase overall demand for workers by business and make the economy more competitive.

This last goal is especially important: SA’s economy relies far too heavily on a small number of very large firms, which is not a recipe for dynamism or resilience in the face of the many economic shocks a small economy like ours encounters in a globalised world.

So what would reforms that sought to achieve that actually look like?

In the first instance, we need to make sure the interests of small business are much better reflected in collective bargaining systems, since all too often decisions in these negotiations reflect the trade-offs big business and organised labour can live with, with little concern for how they might affect small and new firms. The exemption of small and new businesses from agreements reached by big players in collective bargaining would protect those firms from the upward pressure on wages, especially for unskilled workers. But rising wages are a challenge not just for small and new firms.

There are good reasons to think some of the most labour-intensive sectors (agriculture, forestry, furniture, clothing manufacture) will see employment levels contract or grow more slowly as a result of the national minimum wage. To minimise the effect of this over time, it is critical that the minimum wage is not simply indexed to inflation and that real care is paid to studying its effects on employment before any upward adjustments are made. This is required by the act, and the government needs to take that requirement seriously.

We should also make it easier for firms to terminate employment relationships with new employees during their probationary periods. This is something the existing labour law provides for, but it also imposes an unnecessarily onerous set of duties on employers before they can make use of it. The effect of these restrictions is to make the decision to employ someone more risky: the more difficult and costly it is terminate someone’s employment, the more carefully firms think about hiring them in the first place, and whether they need to do so at all.

Another reform that would help is to end the asymmetry that exists in using the Commission for Conciliation, Mediation and Arbitration (CCMA). For dismissed workers this is a near costless exercise, but that is not the case for employers. The employment decision would be further derisked if the CCMA were able to impose penalties on those who bring frivolous cases in the hope of nuisance-reduction pay-outs from employers.

A further change that would help encourage new labour-intensive activities is to shift the balance of industrial policy away from capital-intensive industries and firms, with the resources redirected to support labour-intensive activities. A rebalanced industrial policy should be reinforced by the expansion of eligibility for the employment tax incentive, which currently provides time-bound support to employers of young low-wage workers. Providing this support to a wider range of workers (or even making it permanent for all low-wage workers) would help labour-intensive firms be more competitive.

No plausible jobs strategy will generate millions of new jobs quickly, so SA must continue to invest in public employment schemes like the Expanded Public Works Programme and Community Work Programme. There are real concerns about the integrity of some of these schemes and about the extent to which they create as many jobs as they claim. Recognising their necessity, we need more transparent hiring practices and to squeeze as much employment as possible out of these programmes.

Expanded employment in the formal sector is by far the most effective strategy for increasing the inclusivity of SA’s economy. With more than 10-million unemployed and rising, the current approach to growth, jobs and the labour market has to change. Plausible reforms that would make a real difference are possible. Our leaders need to implement them.

• Bernstein is head of the Centre for Development and Enterprise. This article is based on a new CDE report, “Ten Million and Rising: What it would take to address SA’s jobs bloodbath”.

Article published on Business Day