Labour Broking Changes Causes Loss of Jobs

Half of the workers employed through labour brokers lost their jobs while a far smaller portion got permanent jobs in the 12 months following amendments to the Labour Relations Act that placed restrictions on the employment of temporary workers, new research shows.

The Congress of South African Trade Unions (Cosatu) vigorously campaigned for the amendment in an effort to protect workers and prevent employers from subverting labour law. But statistics gathered from a labour broker industry association and analysed by University of Cape Town economics professor Haroon Bhorat, shows instead a classic trade-off occurred: a small number of workers got better jobs, but most lost employment entirely.

The amendment to section 198 of the Labour Relations Act came into force in April last year and made provision for employees of labour brokers to be deemed permanent employees of the end client after three months. The rationale was to prevent employers from hiring workers on endless temporary contracts and so avoiding the payment of benefits associated with full-time employment.

A survey of its members undertaken by the Confederation of Associations in the Private Employment Sector (Capes) shows that while a small number of employees were taken on by the end client — 20% — and got permanent jobs, 50% had their employment terminated. The remainder were unaffected or given new contracts of some sort. "Just over half of all temporary employment service employees had their employment relationship either terminated (45.4%) or underwent retrenchment (5.5%).

"Job destruction was the key response in the wake of the regulatory changes," writes Prof Bhorat and co-authors Sibahle Magadla and Francois Steenkamp. The negative effects were highest in the metal and engineering sector, the public sector, among white collar workers and in education. The survey sample suggests that in the government "essentially all workers previously employed through third-party contractors have lost their jobs", says the paper. Sectors that responded most positively by absorbing temporary contract workers into the permanent workforce were companies in the waste management (73.85%); hospitality and leisure (47.55%); and retail (66.86%) sectors.

The survey showed how companies that typically used labour supplied by brokers responded to the changes, and did not demonstrate an economy-wide effect. Firms, for example, could have employed workers from sources not reflected in the survey. However, a comparison of what happened in the labour market in the immediate aftermath of the amendment lent support to the possibility that the trend shown by the Capes survey was strongly indicative of an economy-wide effect.

Between the first and second quarters of last year, prior to the amendment, the quarterly labour force survey showed 59 job losses in the temporary employment sector. In the following year, over the same period the sector experienced 3,516 job losses. As it could be expected that the two periods would have the same set of economic conditions, with the only change the amendment process, job losses are likely to be a function of this change. "The idea that we had a close to sixtyfold increase in employment losses in the industry, compared to a year before, is strongly indicative of the early impact on employment that this amendment has had," states the paper.

Prof Bhorat said while in a sense the survey provided an impact study, a full econometric analysis that considered changes due to other factors would be required to analyse the question more deeply. Deputy director-general in the Department of Labour Thembinkosi Mkalipi said it was too early to tell if there had been a negative employment effect resulting from the amendment, but that the department was watching labour force data. "In my own view, if there is evidence that there are serious job losses then we will have to look at it, although I’m not sure it would fly politically," he said.

Cosatu president Sdumo Dlamini said the job losses "were large" and a concern. However, partial restrictions on labour brokers rather than a total ban meant that employers would continue to manipulate the system and dismiss workers or move them around between contracts. Cosatu would continue to push for a total ban, he said. In an earlier research paper, Prof Bhorat had warned of the negative employment effect that would be likely should restrictions be placed on labour brokers. Temporary employment services, he found, had been the largest source of job creation since 1994, and accounted for 14% of all jobs created in the South African economy between 1994 and 2001.

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