A demand analysis of labour in South African agriculture : the effects of labour legislation.
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Date
2006
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Abstract
Labour legislation was introduced into agriculture in the early 1990s with the Basic
Conditions of Employment Act (BCEA) being gazetted in 1992. Since the mid-1990s "new"
labour legislation pertaining to agriculture has been implemented in South Africa, and
includes the Basic Conditions of Employment Act 75 of 1997 (amended), the Unemployment
Insurance Act 63 of 2001 (amended), the Labour Relations Act (LRA) 66 of 1995, the Land
Reform (Labour Tenants) Act 3 of 1996, the Extension of Security of Tenure Act 62 of 1997,
the Employment Equity Act 55 of 1998, the Skills Development Levies Act 9 of 1999, and
the Sectoral Determination (an amendment of the BCEA 75 of 1997) which includes the
imposition of minimum wages. This study examines the legislation in detail as well as the
implications of this legislation for agricultural labour employment in South Africa. A
relative increase in the cost (transaction and wage) and risk associated with labour motivates
farmers to replace labour with machinery, machinery contractors, labour contractors or new
technologies that are labour-saving. This results in a decrease in the demand for unskilled
workers and higher levels of poverty and unemployment in South Africa.
This study estimates long-run price elasticities of demand for regular labour in South African
(SA) agriculture using both Ordinary Least Squares (OLS) regression and a Two-stage Least
Squares (2SLS) simultaneous equations model. The 2SLS model includes a labour supply
equation. Secondary data obtained over a 43 year period (1960-2002) from Statistics South
Africa and the Abstract of Agricultural Statistics were used in this study. Both models were
estimated for the period 1960-2002, and included a piecewise slope dummy variable for
wages with the threshold year taken as 1991 to reflect expected changes in farm labour
legislation. Study results show that the estimated long-run price elasticity of demand for
labour for the pre-1991 (i.e., 1960-1990) period was -0,25 for the OLS model and -0,23 for
the 2SLS model suggesting that the demand for regular labour was jnelastic during this
period. For the post-1991 period (1991-2002), the long-run elasticity was estimated as -1,32
for the OLS model and -1,34 for the 2SLS model. This shows a structural change in demand
that questions the appropriateness of minimum wage and other labour legislation that has
raised the cost of regular farm labour in South Africa.
Labour legislation introduced in the early 1990s encouraged farmers to substitute casual
workers for regular workers. However, the inclusion of all casual workers in minimum wage
legislation from 2006 is expected to slow the casualisation of agricultural labour as farmers
turn to labour contractors, chemicals and machinery as the next best substitutes. The study
found that an increase (decrease) in the price of chemicals (pesticides and herbicides for
crops, and labour saving dips and sprays for animals) result in an increase (decrease) in the
demand for regular labour. The demand for labour is also sensitive to changes in real interest
rates (used as a proxy for machinery costs). The cost of capital would decrease (increase) as
interest rates fall (rise), resulting in farmers adopting more (less) machinery and equipment,
causing a decrease (increase) in the demand for regular labour, ceteris paribus.
In order to reverse the regular labour unemployment trend in SA agriculture, government
could choose to adopt more flexible labour market regulations (i.e., legislation regarding the
hiring and dismissing of farm workers, and increases in wages and benefits for the farm
worker could be based on the individual performance of each worker as opposed to
increasing the wages of the entire workforce through minimum wages) which would reduce
labour costs and encourage farmers to employ more labour.
Description
Thesis (M.Agric.Man.)-University of KwaZulu-Natal, Pietermaritzburg, 2006.
Keywords
Agricultural labourers--South Africa., Agricultural labourers--Legal aspects, laws, etc.--South Africa., Agricultural labourers--Supply and demand--South Africa., Agricultural laws and legislation--South Africa., Labour laws and legislation--South Africa., Agricultural wages--South Africa., Agriculture--Economic aspects--South Africa., Theses--Agricultural economics.