TES in South Africa: Assessing the Industry's Economic Impact
Authors: Professor Haroon Bhorat, Aaila Cassim & Derek Yu
Conducted by University of Cape Town (UCT) Development Policy Research Unit
Released: 11 November 2014
Temporary employment contributed over R265m to SA GDP in 2013
Research shows TES sector biggest contributor to employment, especially of youth
Temporary Employment Services (TES), frequently referred to as Labour brokers, have created more jobs in South Africa than any other sector since 1995, a new research report has revealed.
And it says that legislation which aims to curb the so-called Temporary Employment Services (TES) industry through the Labour Relations Amendment Bill (2013) would fuel “employment losses (which) would result in sharply rising levels of household poverty”.
It says that labour brokers are employing far more young people than any other sector of the economy.
Research conducted by the University of Cape Town’s (UCT) Development Policy Research Unit says: “The relative lack of research on the TES industry has left the public and policy makers under-informed about the characteristics and the economic and welfare contribution of TES employment to the South African economy.
“The evidence suggests that the sector has been the single highest creator of jobs in the economy – growing at a rate faster than all other main sectors of the economy. The majority of these jobs are concentrated in semi-skilled, service-orientated occupations, countering the perceptions that they are an unskilled-intensive employer.
“Perhaps most crucially, the industry is very clearly biased towards providing employment for young people and in ensuring that a significant share of these workers move into permanent positions.”
They add: “We found that a significant number of households would be worse off if TES earnings are removed and the industry contributes to household welfare. The flexible nature of employment has contributed to expansion of industry, tax income to the fiscus and through this, economic growth.
“These are key considerations for policy makers when engaging in the debate around the labour broking industry. The fact that this channel of employment is also provided through a fair number of small businesses reinforces the importance of this sector to employment creation in South Africa.”
Job creation and unemployment
Labour brokers accounted for around 1.3 million of 2 million jobs created since 1995 within the finance and business sector. The vast majority of these were reserved for people with higher levels of education.
“The perception that labour brokers employ low-skilled workers under poor working conditions without an employment contract is not borne out in the data,” says Johnny Goldberg, Chief Operating Officer of CAPES.
“South Africa’s exceptionally high levels of youth unemployment, reaching 36 percent in 2014, suggests that the labour market is excluding a large cohort of young people. It is notable that 70 percent of young people employed by TES are absorbed either in to medium or low skilled occupations. The bulk of TES workers thus have either secondary education with, or without, a Matric. This qualification and occupation data for young people suggests that the sector is a vital first port of entry into the labour market for young people, with either incomplete schooling or a Matric. For a society where youth unemployment rates regularly exceed 50 percent, this role played by the sector in absorbing young people into productive employment is fundamentally important to both the labour market and the economy as a whole,” Goldberg says.
Contribution to the economy
In addition to employing millions of South Africa’s youth, labour brokers are estimated to generate R40 billion a year which contributes to tax revenue for the fiscus, employs millions and supports thousands of families.
There are approximately between 5 and 9 million households in the economy, depending on definition, living below the poverty line.
“TES contributes to both household welfare as well as economic growth. Our research found that TES earnings have kept between 3 and 7 percent of households above the poverty line, constituting over 300 000 households in the economy. Furthermore, the TES sector contributed around 9 percent to GDP in 2013 which is significant in the context of South Africa’s low levels of economic growth,” explains Professor Haroon Bhorat, Director: Development Policy Research Unit (DPRU) for UCT’s School of Economics.
“In turn though, our estimates show that without such earnings from the TES sector, the first-round poverty-reducing impact would see household poverty levels increasing to somewhere from 38.0 percent to 65.8 percent, depending on the poverty line used. Put differently, without the operation of the sector, as an approximation of first-round effects, between 280 067 and 362 528 more households would be in poverty.
Not only does TES employment contribute to household earnings in a way that reduces poverty but employment losses within the TES sub-sector are likely to result in sharply rising levels of household poverty. One important backdrop to these results is that they illustrate that the sector employs workers who are in households relatively close to the poverty line.”
The post-1994 labour market environment in South Africa has been marked by a sharp rise in the use of temporary employment services, often referred to as “Labour Brokers”. This demonstrates that employers in South Africa have opted at an increasing rate, not to employ workers directly but rather through TES providers.
A previous lack of research on the TES industry has left the public discourse uninformed and misled with regards to TES workers being medium-skilled, largely in services and sales type occupation workers and not simply unskilled workers in elementary occupations.
In addition, the research has shown that as TES has grown, it has absorbed young people at a rate faster than observed for overall levels of employment and within the Finance and Business Services sector. These and other findings reinforce the need to re-centre economic policy and labour debates around the sector.
With TES earnings keeping between three and seven percent of households above the poverty line, constituting over 300 000 households in the economy and having contributed around 9 percent to GDP in 2013; a potential ban on Labour Broking could have severe consequences.
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