Labour market rigidities and unemployment : lessons for South Africa from the European experience.

Abstract

The aim of this thesis is to investigate the relationship between labour market rigidities and unemployment. The thesis does not attempt to undertake surveys, providing instead an overview of the literature and of South African works. The unemployment - labour market rigidity debate is analysed with particular reference to the experiences of European countries belonging the Organisation of Economic Cooperation and

Development (OECD). It appears that while adverse shocks acted in the direction of raising unemployment, they could not account for the considerable heterogeneity or the persistence in unemployment levels across countries. The possibility that labour market institutions or

rigidities had a role to play in propagating the effects of adverse shocks on unemployment was then raised, leading to the emergence of a broad consensus that European unemployment has its sources in the interactions of adverse shocks and adverse labour market institutions.

Rigidities in the labour market have their source in trade union intransigence and in the legislation governing the labour market. Trade unions in South Africa are strong and in the past have been particularly militant in achieving their objectives of raising members' wages

and improving conditions of employment. The regulatory environment in which the South African labour market operates was examined . South Africa's adoption of labour legislation that is very trade union friendly, and that introduces greater inflexibility into the market and affects business's abilities to adapt to change, which is particularly necessary within the

context of globalisation, is against the trend observed internationally. The implementation of such legislation seems irresponsible in a country where conservatively 26,4 percent of the economically active population is unemployed.