S.Africa union shakes labour market with wage cut plan

A struggling South African textile union may be changing the way labour is priced in Africa's largest economy by offering massive wage reductions to unskilled workers to create jobs and save a dying industry.

The South African Clothing and Textile Workers Union (SACTWU) will cut wages for entry level jobs by 30 percent to revive a sector decimated by cheap Chinese imports.

The move comes as the union's parent federation COSATU, part of a governing alliance with the ruling ANC, has lobbied for years against wage cuts, which COSATU argues will lead to the increased exploitation of labour.

We estimate is that this would create 5,000 jobs by March 2014. If this is not achieved, then the agreement will fall away, SACTWU's general secretary Andries Kriel was quoted saying in The Business Day. No comment was immediately available from the union.

South Africa fares poorly in terms of the global competitiveness of its labour force with its factory workers making about six times more than counterparts in China and being far less productive.

Everyone involved, and particularly the unions should be thoroughly congratulated - they will all be increasing jobs at zero cost to government, zero cost to existing workers and a big positive for new workers and the industry as they expand, said Peter Attard Montalto, emerging markets economist at Nomura International.

This move also goes to correct somewhat the recent negative impression I have heard amongst investors that South Africa would rather have no jobs than lower paid jobs, he said.

COSATU has stymied efforts to reduce wages to create more jobs, with analysts saying it is more concerned about protecting its 2 million members than reducing unemployment.

A few months ago, it protested against a suggestion floated by Finance Minister Pravin Gordhan to expand new entrants into the labour force by reducing wages for apprentices, calling it a right-wing reactionary plan.

Youth unemployment is at about 50 percent and a study by the South African Institute of Race Relations said about half of the current generation of those between 25 to 34 years old will never work in their lifetimes.

Economists have said without an inexpensive way to take new workers into a workforce suffering from a chronic unemployment rate of about 25 percent, the unemployed will likely remain unemployed -- raising government spending for welfare benefits.

Firms have shied away from South Africa due to the laws that make it expensive to hire and fire workers and are ranked by the World Economic Forum's Global Competitiveness Report as some of the most restrictive in the world.

President Jacob Zuma has pledged billions of dollars for job creation but his government has undercut those plans by proposing sweeping changes to labour laws that a presidential report said could cause millions to lose their jobs by adding a raft of new costs and regulations on employers.

We are still discussing SACTWU's decision and it will be premature to make a statement at this stage, COSATU spokesman Patrick Craven said.