Competition in labour

By Zakhele Mthembu BA Law LLB (Wits) is a legal researcher at the Free Market Foundation.By Zakhele Mthembu BA Law LLB (Wits) is a legal researcher at the Free Market Foundation.

Competition is usually something associated with businesses. In South Africa we even have legislation which mandates competition. The marketplace is made up of workers too, yet we hardly hear of worker competition as something that ought to be encouraged. One can ask, is labour competition not a good thing?

Competition in the business environment has been identified to lead to many successes. It is even regarded as a hallmark of a free market economy. The ability of any participant, or seller of goods and services, to have someone else enter their market and do what they think is best. We see competition in retailers, big and small, property companies, liquor companies, and manufacturers of varying kinds. Pretty much where the government does not bar any competition, as in the energy market with Eskom, you will find competition.

The labour market is no different. You find people with the same skills numbering in their hundreds. As it is considered a good thing in business that a competitor will come in and undercut the existing business through low prices for instance. So, it ought to be acceptable in the labour market also. Why is it bad that another worker, if they so wish, can undercut an established worker by being paid less? I argue that eliminating emotional attachments to the term ‘worker’ makes the issue clear. What is good for business is also good for workers; namely, competition. 

In the labour market though, monopolies, or what would be called monopolies in the business market, are not only encouraged but protected once established. In general, if a business is a monopoly through market processes and is not protected by legislation, then there is nothing wrong. In the same vein, when a worker, who for instance has a rare skill that is in high demand retains their job irrespective of wage demands from him, then that should be permissible.

The problem arises when there will be laws, such as minimum wage laws, that will then make it illegal for a potential worker to undercut your wage demands should they wish to. In the same vein, the problem arises when a business is protected from competition by laws that inhibit potential new entrants. This can also be in the form of regulatory compliance that makes it next to impossible for an ordinary layperson to compete effectively, as is the case in the Banking sector, the most regulated sector arguably and the most concentrated in terms of the number of enterprises operating in that market formally.

When workers who signed a contract willingly want to change terms after the fact, demanding that the other party bend to their will, that substantively is an abuse of dominance. When a major union lobbies for the passing of legislation that will see price floors in employment, they are engaging in an abuse of their dominance. When the government passes laws, protecting existing workers, it does not give heed as to the effect of these laws on the unemployed wishing to be workers. How do they feel about such laws? What if an unemployed personis okay with the amount of compensation that would now be illegal to give? They do not know better, says an academic, wholly detached from the reality of having no income nor the prospect thereof.

Competition is seen as vital in every other market but labour. With unemployment at all-time highs in South Africa, the conversation about competition in labour needs to happen. Given the current political climate, the conversation is mostly framed within a context of South Africans competing with foreigners (read African Black foreigners) in the labour market, and how this is a bad thing. The emotions associated with seeing someone who does not speak a language like yours getting an income when you have none in your ‘backyard’ is understandable. Yet, competition in labour has benefits, those being getting skilled labour at low prices.

For instance, the construction industry in the townships, building walls, extending houses, building backrooms, or installing gates, has a considerable number of foreigners competing with local labourers. The result has been building, although still costly, being affordable enough for people in the townships to be able to do it.

The above is only one example of the benefits that come with labour competition. The same benefits of competition which we see and appreciate among businesses, should also be encouraged in every other market. Therefore, competition should start being thought of holistically, not being encouraged among businesses only but being applicable to every economic actor, juristic or natural.