Necessary "Evil"

In an article posted in the New Age Newspaper on the 14th of December 2010 unions are purported to seek a total ban on Labour Brokers in South Africa and that the demands are building in strength and momentum. So much so it has been dubbed “The Mother of all Battles”. The method to be used by the Unions is the demand for Section 189 of the Labour Relations Act to be repealed. This section directly deals with temporary employment. Although one does have empathy for the plight of the Unions, in the article they specifically mention Labour Broker’s unwillingness to do salary deductions for unions, and the so-called extorted workers one has to review the impact that such critical changes will have in the job creation front.

One has to understand that life has to occur in balance. Once the one side of the scale is packed to heavy life responds by acting “aggressively” to balance the scale. A typical example of how life and people in South Africa has responded to heavy handed government intervention is in the illegal cigarette market which, at least according to British American Tobacco’s advertising campaign, is spiraling out of control and has suddenly become the largest funder of other more violent and “less profitable” crimes like robbery, gun running and drugs. Is the assumption that this is like a gateway crime.
We cannot at all be surprised by the growth of this “market segment”, as approximately 50% of cigarette turnover (not profit) is passed on to government in the form of exorbitant sin taxes. These excessive taxes make it virtually impossible for competitors to enter into the market with cheaper alternatives, without breaking the law. Therefore heavy handed government involvement has created an economy conducive to trading, smuggling and selling illegal cigarettes whilst protecting and building a monopoly state in this R 25 Billion per annum industry.

Indulging me to use the above as an example, one has to ponder if such over protectionism in the labour market will have a positive or negative effect and what the direct effect will be on job creation. All our major job creation industries are currently shedding jobs at a massive scale. In Novembers figures an approximate 18,000 jobs was shed in the formal industry(Banking and Manufacturing the largest culprits). However agency work or labour brokering (governed by Section 189) has been creating jobs at a rate of 5%+ per annum. Is this not already a sign that an over regulated environment is creating opportunities for business men in South Africa? Is it not proof that additional regulation may, as in the cigarette industry, cause a form of illegal labour operations? Before you laugh out loud, be prudent in considering the fact that the Mafia controlled US Cities and even states, due to the ”ownership” of unions.

It cannot be ignored that about 7% of South Africa’s workforce is currently employed in the Labour Brokering environment and that this amount is only set to grow, if left to operate. However if this industry is going to be declared illegal would the Private Sector, in reality, absorb these employees? What would business to do repair the scales of balance? Another point that is prudent to investigate is true and honest temporary employment. If Project Management, the agricultural industry or contract based businesses are not going to be allowed to align their staffing strategy with their actual demands, which by default varies from time to time, it may very well cause these industries immense damage and, at least in my mind, cause these industries to seek alternatives to employing people. Items like mechanization, automation and technology deployment would become the leading factor in business success and not staff deployment and training. This does not show a rosy picture for the blue collar worker the union is so set to protect, or at least protect salary deductions from.

In conclusion, it should be considered whether the “evil” of labour brokering is not a “necessary evil” to stimulate our economy’s most dire demand, job creation. Maybe better and focused regulation of temporary workers and labour brokers would be a more viable option. Maybe more emphasis on training and social investment by these firms may protect our economy from the short term damage of job losses, whilst encouraging future growth for our unemployment figures.

Outsourcing vs Labour Brokering

Especially in South Africa labour brokering is often confused with outsourcing and the biggest culprits in promoting this myth is the labour brokering industry itself. Now I would like to state very clearly that I am not against labour brokering and I am a firm believer that there is an important place for the industry in South Africa. That said I think it is prudent to ensure that the two very different industries are not confused.

Firstly, labour brokering is the provision of staff on an outsourced basis, whilst outsourcing is the fulfilling of a function within which a staffing solution may be provided. The methodology and profit generation of these industries is vastly different. Allow me to explain in slightly more detail.

A labour broker earns its revenue from employing and deploying as many staff members as possible. The profits are generated from invoicing their clients more than what they pay the employee. The biggest reason a company is willing to pay a premium for this service is the “passing-on” of risks associated with employing staff and in some cases the increased costs, if any, can be justified by the decreased administration requirement.

A true outsourcing company, on the other hand, generates its revenue from addressing the need of the company within a function at as low a cost as possible and charging the client a premium for that service. Usually at a lower rate than employing staff to fulfil that function. The focus of the outsourcing company is therefore not on their clients staffing requirement but rather on the function that needs to be fulfilled.

So in other words the outsourcing company generates its margin from increasing its efficiency and by leveraging the intellectual capital within the company. For example using better software and more expensive staff than what its clients could afford and sharing these resources with more than one client. On the other hand the labour broker generates its margin from its administrative abilities and from decreasing legal risk.

So which one should your company choose? Simple, it depends on your need. If you require a warm body and do not want litigation risk and the administrative head ache of employment, labour brokering is a viable option for you. If you on the other hand require a function within your company to be managed more effectively and at lower cost outsourcing should then be looked at.

In conclusion, both industries have an important place in the South African economy and address the needs of companies to reduce risk and potentially costs. That said they should not be confused or pit against each other.