Confederation of Associations in the Private Employment Sector

The Voice of the South African Staffing Industry

 

Employment Effects in the Temporary Employment Services (TES) Sector: Post- Regulatory Amendment Effects (A Briefing Note)  

Authors:  Haroon Bhorat, Sibahle Magadla, and Francois Steenkamp[1_

Published:  June 2015

Introduction

Section 198 of the Labour Relations Amendment Act (2014) makes provision for temporary employment service (TES) employees who earn below a specified threshold (currently R205 433.30 per annum) to be deemed permanent employees after a continuous three-month period of employment. As a result, the Amendment (formally gazetted as the Labour Relations Amendment Act 6/2014) makes the employment of temporary staff in excess of three months, without justifiable reason, illegal.  There has been much concern about the impact of this amendment on employment levels in the aggregate, and on employment levels within the TES sector.

This short briefing note examines the employment effects resulting from the amendment process passed through Parliament on 4 March 2014, and signed by the President on 2 September 2014. At the outset, it must be noted that theoretically it is possible that some of the shifts in employment may not be directly attributable to the Amendment itself.  For instance, an industry may be experiencing a negative or positive trade, output or other shock at the time of the Amendment.  Nevertheless, the results presented below are, we suggest, strongly indicative of the early, short-run employment effects of the Amendment. 

 Conclusion

This basic briefing note has investigated the employment effects arising from the impact of the amendment to Section 198 of The Labour Relations Act, which enforces the permanent employment of temporary workers who have been employed continuously for more than 3 months and earn below a specified threshold.

Ultimately, the above suggests that the primary response by firms to the Amendment was negative, with approximately half of the temporary employees in the sample having their jobs either terminated or being retrenched.  Only one in every four temporary employees were made permanent following the Amendment.  A substantial number of temporary employees were unaffected.  Negative effects were felt most strongly in Manufacturing, Finance, Real Estate and Business services, and Public and Social Services industries and the Gauteng and KwaZulu Natal Provinces.  Positive employment effects were felt most strongly the Wholesale and Retail Trade, and Tourism industries and the Gauteng and Western Cape Provinces.

Notably when comparing this data to the previous year - using the Quarterly Labour Force Survey data - our results confirm a sharp rise in job losses in the immediate aftermath of the regulatory amendment.  The data provides early, short-run evidence that the most common response amongst firms facing the regulatory change, has been to retrench workers or to prematurely terminate contracts of employment.  As one examines the longer run effects of this law, the concern amongst policy makers must surely be the extent to which additional possible  employment creation has been reduced given this regulatory intervention. 

[1] All comments can be directed to Professor Haroon Bhorat at haroon.bhorat@uct.ac.za

To read the full report, please download it