[TALK]: Lucien van der Walt, 1998, “Low Wages will not Create Jobs, Struggle will”

Lucien van der Walt, 1998, “Low Wages Will Not Create Jobs , Struggle Will,” Workers Solidarity meeting, Workers Library and Museum, Newtown, Johannesburg, 15 August

The bosses and the government say that low wages will lead to more jobs.  This is in the GEAR (government) and the SA Foundation (big business) policies.  Both government and business will be making this argument at the Presidential Job Summit later this year.

What they are saying is that wages in South Africa are very high. Also, they will complain that workers have many rights, such as paternity and maternity leave. All of these rights make workers very expensive to hire, they continue. In fact, they make workers too expensive to hire, and so bosses have decided not to hire more people because this will cost too much.

In other words, what they are saying is that wages and conditions for workers in South Africa are so good that workers have priced themselves out of the market. In other words, unemployment is being caused by very expensive labour. Expensive in terms of money and in terms of time. That is the argument: workers are too expensive. That leads to unemployment. That is, unemployment is caused by workers! By decent wages! By rights! And by unions which help push up wages and win rights!

The so-called “solution” then is lower wages, less rights, and weaker unions. So the solution to unemployment both the government and the bosses is calling for is a so-called “flexible labour market”. What this means is that wages and working conditions must be reduced to a level that is acceptable to employers.

For example, then 1996 GEAR policy speaks of “regulated flexibility.” This means that while some core rights will be enforced, collective bargaining agreements and government laws will be allowed to vary according to region, workers’ skills, size of company, economic viability, and age (lower for new workers) and other factors. The Minister of Labour will also have the power to allow certain companies to be exempted from collective bargaining agreements and parts of the labour laws. New workers should first get paid a lower trainee wage. In addition, existing workers must not make very big wage demands. Workers must only get paid more if they work harder – this is called linking wages to productivity.

For the SAF, that is big business, in Growth for All (1996), there should be a “two-tier labour market” as well. So while existing workers will be affected by flexible labour, it will focus on new workers, who will be employed at lower wages; they will have union rights, but they will not be covered by existing collective bargaining agreements. The game is clear enough: once this is in place, then existing workers will lose their jobs, and be replaced by newer cheaper workers, or have to reapply for their jobs as newer, cheaper workers. Flexible labour will swallow everyone.

LOWER WAGES DO NOT MEAN MORE JOBS

This argument that a “flexible” labour market and low wages will make more jobs is a dangerous one, obviously, because it will worsen working class conditions and undermine unions, and we can easily see a situation where ten years down the line, a huge part of the working class will be flexible – those who aren’t will be terrified of being replaced and happy to accept worse conditions.

The argument that tries to link wage levels and unemployment levels sounds strong on paper. There are whole books taught in universities that make this argument. But an argument must be tested against facts, and as we saw, the facts blow this theory out of the water. There are many facts that show the argument that low wages and “flexible labor markets” lead to an increase in jobs is profoundly wrong:

1. Wages in South Africa are already very low. The bosses say that South African workers get paid much more than workers in other developing countries. This is not true. If you look at the wages of ordinary black workers, they are lower than the wages of ordinary workers in similar countries such as Mexico, Brazil and Korea. There are many workers in South Africa who, even under the collective bargaining agreements, still earn only R500 a month. This includes labourers in the metal industry and municipalities. The situation is worst for unorganised workers. So can we truly blame high wages for high unemployment, when wages are low?
2. Unemployment is growing in South Africa despite low wages. In the last two years, for example, one in every ten jobs in South Africa has been lost. Sectors with particularly big job losses include farming and mining. But these are the two sectors with the lowest average wages. In both sectors wages are very, very low. For example, many farm workers earn under R100 a month, yet they are still being fired on a massive scale. More than a million people have been pushed off the farms in the 1990s. At the same time, unemployment is highest amongst the types of workers who work low wage jobs – such as labourers, cleaners, packers, and security guards. So low wages do not guarantee of a job — and unemployment seems to take place regardless of wage levels.
3. There are many unemployed people in South Africa who would be glad to work for a low wage. Many people are so desperate that they will take any job; they are surely not expensive. Some will even work for only food. But they still do not get jobs. If it is high wage demands that lock workers out of jobs, how can it be that workers who will accept very low wages remain unemployed?
4. The labour laws in South Africa already allow flexible labour markets. Not one GEAR proposals for “regulated flexibility” is new. The the Basic Conditions of Employment Act grants many rights to workers including allowances for night shift, paid maternity leave and so on, but the BCEA also says that these conditions can be flexibly applied to different firms. The LRA, too, grants many rights to workers, but it allows exemptions, and variation, and in any case, is only firmly applied when unions are strong; a lot of the law is just paper. So the labour laws already allow flexibility.
5. If you look at different countries across the world, you will see that low wages do not make more jobs. The countries which have the lowest wages are also the countries with the most unemployment. We do not need to look for countries in situations of war or crisis. Wages are much lower in every country neighbouring South Africa, for example, Lesotho, Swaziland and Zimbabwe, but these countries have much higher unemployment rates than South Africa – even though south African wages (while low) are generally higher than wages in these countries. Why don’t the bosses send all their factories to Lesotho then? If you look internationally, it can also be seen that countries with the highest average wages are also the countries with the lowest levels of unemployment. Countries like Germany, France and Sweden have less than ten percent unemployment, the USA under five percent, but wages are much higher than in South Africa. So there is no clear match (“correlation”) between high wage levels and high unemployment levels within or between countries.
6. So, low wages do not create employment, but high unemployment levels help create low wages. Let me explain. If there are many unemployed people who will work for any wage, then those workers with jobs are willing to accept low wages because they are afraid if they strike that unemployed people will take their jobs. South Africa has high unemployment and low wage, but Lesotho has even higher unemployment and even lower wages. On the other extreme, high employment levels help create high wages. For example, Sweden has very high wages but very low unemployment. This is partly for the simple reason that if there are so few people looking for jobs, the boss cannot just hire and hire workers, he has to treat workers better so that they will stay in his firm – and obviously unions do not have to worry about scabs too much. So a low wage country will usually have higher unemployment than a high wage country.
7. Cutting wages or pushing down the average wage can easily lead to less rather than more jobs. This is for the simple reason that if wages for existing workers are pushed lower, then these workers can buy less goods or services. The goods are made in factories. If workers buy less, factories will make less – and then need fewer workers. If wages get higher, workers can buy more goods, which means more has to be made, which leads to more workers being taken on. So low wages can in fact lead to fewer jobs.
8. The rise of massive unemployment in South Africa started in the early 1970s; it is still -with us today. It began before the rise of powerful unions like FOSATU and then COSATU. To blame the unions for something that came before them makes no sense: it is like blaming the day for the night. Unions were partly a response to growing unemployment: less jobs per family put pressure on existing workers to earn more money, so the family could survive – and unions were a key way to raise wages. Now to look elsewhere: a country like Sweden has far larger unions than South Africa, but less unemployment; the USA has far weaker unions, but less unemployment. So there is no direct link between union strength and unemployment levels.
9. If wages are cut the boss, yes, certainly, will have more money to hire more workers. But who says that the boss will put the money into the factory to make more jobs? In South Africa, bosses have been putting their money into machines which replace workers, or they have been using their money to buy up existing companies or to play with money through stock exchanges and banks—not in expanding output or employment. This reason – and the ones before – all point to the fact that the causes of unemployment are much more complex than the higher wages / labour laws / strong unions’ line of thinking suggests.

WHAT CAUSES UNEMPLOYMENT?

The causes of unemployment do not lie in wage levels as such. Instead, unemployment is produced by the working of capitalism and the state – it will rise and fall whether or not wages are high or low, or unions are strong, weak or missing in action.

Capitalism is an economic system, based on profit. Workers are hired when it is profitable – whether or not wages are high.

1. Capitalists do not just look at wage levels or labour laws when deciding to set up a factory. They look at many factors. For example, is there a good infrastructure, like roads and power, plus banks, services, IT and so on? Can they sell products? That is a business is more likely to come to South Africa than Lesotho, or Sweden than South Africa: there is a better set-up for doing business, and more people with money to spend.
2. But at the same time, the push to make profit can also lead to job losses – for example, if a machine can do a job quickly and without overtime, a union, or kids, the machine “gets” the job. Lower wages will not change that, if the workers available are not skilled – no matter how cheap. On the other hand, a worker who makes a lot of profit for the firm will probably be kept – regardless of wages. A firm will retrench workers, no matter how cheap, if it is having problems making a profit, which could be due to issues not linked in any way to the firm or the workers, such as a sudden rise on oil prices, or a loss of sales to another firm.
3. And one thing is clear: capitalism has a tendency to go into massive crises – usually called depressions – every 30 or so years, and this is something the capitalists themselves can’t stop. In such a situation, unemployment jumps, factories close and the economy crumbles. Also, because of the crisis, many forms are as I sad earlier doing badly. Some have collapsed, and their workers have lost their jobs. Other forms have had to cut down their operations, leading to more unemployment. Some bosses are scared, and prefer to just buy up other companies rather than risk money in expanding their existing companies.

What does this mean for South Africa?

1. Unemployment in South Africa today is, first and foremost, caused by a massive local and worldwide capitalist crisis that started in the late 1960s and really kicked in, in the early 1970s. From that time on, South Africa has had massive job losses. The unions like COSATU were partly a response by the working class to the crisis and the unemployment.
2. The state, too, has been cutting spending for decades – at least outside of the army and police — and restructuring and privatising. So state firms like ESKOM have also gutted their workforces, while privatised firms like ISCOR have thrown tens of thousands out. This is partly because the South African state has been running out of money for years, partly because of the capitalist crisis.
3. It is also because the apartheid state, and now the ANC-led post-apartheid state, and in fact states and big companies worldwide see neo-liberal policies –privatising, cutting spending, flexible labour and so on –as the big solution to the capitalist crisis.
4. Beyond this, job losses are used as a weapon: bosses hate unions, and using machinery weakens unions, flexible labour weakens unions, and high levels of unemployment push down wages and create scabs, which weakens unions.

WHY DO THE BOSSES WANT LOW WAGES?

The bosses do not care of workers have jobs. What matters is profit and power.

Here we need to understand where profit comes from. It is not something magic that happens when a thing is sold.

Take a worker in a car factory. That worker is spending all day making cars.  In total, that worker may build parts of the car that are worth tens of thousands of rand. But at the end of the month, that worker gets say R1,500. That is not linked to what the worker did, but what the worker is paid to survive. Now let’s say the materials and power and so on, for the car, cost R45,000. The boss sells the car for R60,000. Where is the extra R15,000 from? What has changed? The worker has added that to the car through work, which has transformed the materials and power and on so. But the worker got R1,500 even though he or she added value of R15,000. The boss got a “surplus value” of R13,500.

Now say that the worker gets paid even less, like R1,000. That is R500 more for the boss. The boss gets “surplus value” of R14,000.  Say there are 100 workers in thsi situation: that’s R50,000. Now say our worker become more productive through training or using machines. Now the worker adds R25,000. Say that worker still gets R1,500. The boss gets a “surplus value” of R23,500 from that one.

This is one reason why the bosses want “flexible” labour. It will make them more money.

Second, the bosses are pushing very hard for low wages for another reason as well. The South African economy and the international economy are both growing very slowly. This is because of the global capitalist crisis starting in the 1970s. This means that many firms are having a bad time. Some are closing down, but even those which are still going are not making as much money as they want.

All these firms are fighting each other to make money. They are looking for new ways to make profits and revive investments. That is where neo-liberal measures, and GEAR is a perfect example, as is SAF’s Growth for All, come in.

Let’s look at the car industry again. Say there are five big companies. Each is trying to sell cars. But the economy is not doing well and it is hard to sell cars.  Each company wants to sell as many cars as it can. It is forced by the crisis to try and drop its price. Because if it is cheaper then its cars will sell better. But at the same time, the boss wants to make a profit.

The only way the boss can still make a profit and drop the price is to cut the wage bill. That can mean pushing wages down through flexibility. It can mean replacing workers with machines.  This is what is happening on the mines and farms.

A third factor is power. Unions and organised workers are a challenge to the bosses’ power. They resist what exists and they can possibly create something new and different. For politicians too, unions are a threat. Job losses, low wages, and “flexible labour” are a weapon to bash unions and disorgaise workers, undermining the threat bosses feel.

OUR SOLUTION

So we can see low wages will not help the unemployed, they will just harm the workers. In fact, because most unemployed people are supported by the wages of family members, low wages will make the unemployed even poorer, because they lead to the whole family getting less money.

The whole “low wages create jobs” line is a trick by bosses and politicians. The fact that the ANC government supports low wages in GEAR also shows which side the government is on – the side of the bosses.

We need to respond, first by exposing the nonsense that blames workers and unions for the unemployment the bosses and politicians created; secondly, we need to fight for a living wage and massive job creation; and thirdly, we need to use these fights to build up working class power – including through unions – to create a new, better society controlled by the working class and poor, without bosses and politicians, where the misery or low wages and unemployment is ended for good.

Some elements of the campaign can include:

1. Making sure all workers are organised in the unions, including the immigrants and “flexible workers,” and fighting to equalise wages and conditions for all, while fighting against all forms of oppression;
2. When bosses are trying to fire workers, workers should mobilise and occupy the workplace to protect their jobs: once the workers are fired they are practically impossible to organise, and later court cases are a waste, so keep together and don’t go out that gate!;
3. Unions must also organise the unemployed. If the unemployed are organised, they can march to demand jobs from the government. If they are well organised, government will have to give in. Let’s set a target: say one million decent, useful jobs; back this with general strikes, occupying government buildings and city centres, but much more importantly than all this, wining mass public support.
4. Use the campaigns to build working class consciousness, democratic capacities and organizations, with a concrete aim of winning control over production directly – not through the state –and so, the basis for something better.

Thanks!