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Examining the impact of strikes on the South African economy

Mandela Initiative newsletter (Issue 3, July 2017)

 

 

South Africa has a strong history of strike action, with extensive media coverage of strike activity, but there is a distinct lack of empirical evidence on the costs of strikes to the local economy, and limited understanding of whether strikes move in the same direction as, or opposite to, business cycles. The second component of the Mandela Initiative’s labour markets research theme – also led by DST-NRF South African Research Chair Prof. Haroon Bhorat, focused on the size, nature and consequence of strike activity in the South African economy. This component of the two-part research agenda provides a more objective and informative understanding of the nature of strikes, and the impact of strike activity, in the country.

 

South Africa’s strike action is not much different from similar strikes in other emerging economies

The right to strike is made up of a delicate balance between the power of firms and the rights of employees, and is considered a sign of a healthy democracy. Whilst there are potential benefits from strikes (e.g. better work morale,lower absenteeism, or improved labour productivity), strike action also brings about numerous direct and indirect economic costs that can be high, depending on duration, number of workers involved and divisions affected.

Strikes in the South African context

While South Africa’s labour legislation was still in its infancy in the 1990s, workers increasingly turned to strike action as a bargaining tool. Since then labour legislation in South Africa has become far more complex and extensive in its reach. This has been met both with a decline in the number of strikes, and in the proportion of unionised members of the work force. Our analysis shows that strike frequency has decreased substantially from the beginning of 2000. The Department of Labour attributes this to the setup and improvement of key labour legislation, in the early 1990s, to protect workers and regulate the relationship between employers and employees (e.g. the Labour Relations Act and the Basic Conditions of Employment Act).

That said, when workers do strike today, they do so more intensely, and at greater time-cost to firms and gross value added (GVA) cost to the economy. Days lost to strikes in the 90s numbered between 1 and 4, but in the 2000s, strike intensity increased to as high as 10 – reaching a maximum of 20 days lost in the civil servants strike in 2010. As a result of strike activity, the real GVA was reduced by as high as 0.5% in 2010.

So, is South Africa an international outlier?

Between 1998 – 2008, South Africa’s strike intensity at 2.8% was similar to Denmark, Australia and Iceland, debunking myths that the country has an abnormal level of strike action. In addition, South Africa’s strike action is not much different from similar activity in other emerging economies. For instance, the percentage of strikers’ workdays lost per year between 1999 and 2008 was smaller in South Africa than that of Nigeria, the United States, Turkey, Brazil and India, respectively.

Impact strikes GovernmentZA

Image: GovernmentZA/Flickr

Key findings of the research

We analysed the total value of production foregone as a proportion of the GVA to assess the impact of strikes on South Africa. Looking at the economy as a whole, this proportion was as low as 0.0082% in 2008, but as high as 0.4973% in 2010. As far as the results by industry are concerned, this proportion exceeded 1% twice – in the mining sector in 2014 (3.0781%) and in community services in 2010 (2.1230%).

Additional analysis that investigated real GVA growth with and without strikes showed that using the original real GVA figures as they are, there was positive real GVA growth in the mining industry in three of the 10 years under study. However, had strikes not taken place, this sector would have experienced positive real GVA growth in four years: had strikes not happened in 2010, instead of a negative growth of -1.41%, the real GVA would have grown by 1.52%.

Some policy implications

Analysing the relationship between strikes and gross domestic product shows that there is evidence of strikes being procyclical in South Africa; i.e. workers strike when the business cycle is on the upswing. Our analysis (using Granger causality tests and Van der Velden & Visser (VV) composite strike indicators) reveals a significant causal relationship between the business cycle coincident indicator and the composite strike indicator, as well as between the composite strike indicator and the consumer price index.

Strike frequency has decreased substantially from the beginning of 2000 but
workers strike more intensely, and at greater time-cost

Static analysis shows that strikes can hinder growth in South Africa. Descriptive analysis also shows that improvements in labour legislation coincide with a decline in strikes. We can then infer that if workers feel protected by labour legislation, they are less likely to strike and to turn to unions for protection. A key recommendation is that policy aiming to reduce the negative effect of strikes on the South African economy should intentionally target worker protection.

 

Contributors
This article was written by Haroon Bhorat, Derek Yu, Safia Khan and Amy Thornton, Development Policy Research Unit, University of Cape Town. The publication of the study is forthcoming.