Business Report, Johannesburg, October 27, 2006

Job statistics hide a looming crisis in the building trade

By George Stacey

Business Report, in an article "New construction jobs unlikely to last" (October 3), quotes the Reserve Bank quarterly bulletin of September 2006 that buoyant economic conditions have led to meaningful increases in employment in the construction sector.

In the article, economists registered concern that the surge in informal employment in the building sector, fed by the government's infrastructure expansion plans, might not be sustainable due to the shortage of professional skills.

The report says employment in construction rose by about 22 percent in 2005 and by almost 7 percent in the three months to March this year, but this is not the full picture.

The Reserve Bank quarterly bulletin, quoting Statistics SA's latest quarterly employment survey (QES) data, states that the level of enterprise-surveyed employment in the building industry increased as quoted above. According to the QES this means that employment at the end of March stood at 481 500.

The Stats SA labour force survey published in September 2006 states that employment in the construction sector stood at 864 000 at the end of March 2006, having increased from 639 000 in 2001. Why the difference in the statistics and is it important?

The difference is due to the fact that the labour force survey sample is drawn from a large nationwide sample of households and as such includes those seen as informal sector participants included in the building industry. The QES covers only those enterprises that are registered for income tax.

The difference is important because the 383 000 workers enumerated as part of the informal sector cannot be relegated to the informal sector simply because they are employed by business owners who are not registered with the receiver of revenue. In the labour force survey Stats SA defines a person as a member of the informal sector if "the respondent says that the business that employs him or her is not registered for VAT or income tax".

Participation in the formal sector should be based on more than the respondent's perception. The definition should include the number of people employed in the business, the relationship of the business to those it supplies or works for, and whether it is registered.

There are not 383 000 building industry participants who walk from job to job with a spirit level and trowel and can be regarded in the same category as the person who sells oranges at a taxi rank or who cuts hair outside a Checkers supermarket.

Changes in the construction sector over the past two decades have seen more and more workers employed through labour-only subcontractors. These businesses are paid for the work they do, according to a rate per unit of production, such as R400 per thousand bricks laid or R20 per square metre plastered. Formerly, the same employees would have been employed by the building companies.

These labour-only subcontractors provide bricklaying, plastering, tiling and carpentry skills, as well as the necessary labour. They may provide management of the team in planning and control, or this may be left to company staff.

This process started in the 1980s and gathered momentum through the 1990s. When the building industry bargaining council functioned, all staff had to be registered. With the political changes, the introduction of the Labour Relations Act and the extension of the agreement to more categories of workers, there was an increase in wage expectations and the cost of employment.

With increasing mobility, an economic downturn and the loosening up of the labour market, staff were retrenched and often re-employed as labour-only subcontractors. This had obvious advantages for companies: overheads were slashed, supervision costs decreased, labour costs could be fixed and the cost of poor productivity was transferred to the subcontractor.

The bargaining council collapsed in the late 1990s as it became impossible to ensure compliance by building contractors with the agreement. All the major construction companies now employ minimal numbers of artisans in relation to their turnover.

The use of labour-only subcontractors is almost universal and inadequately documented.

It is ironic that because the labour department and the SA Revenue Service have been unable to effectively implement their functions within the sector, large numbers of certain productive staff on building sites are without adequate protection, and they are defined as informal workers, even though they might be in large teams. Some companies also employ labour brokers to supply staff to clean, excavate and trench for them. Thus they employ only essential supervisory staff, storemen and so on.

A senior industry figure commented that the labour-only subcontractors that employ staff remained "under the radar screen".

The implications of being below the radar screen is that labour conditions are in many instances primitive: there is little if any leave pay, no sick leave, no unemployment insurance and low wages. Disciplinary procedures are arbitrary or not followed at all and there are no resources for training.

As the industry is seen as one of the main sources of employment creation, it begs the question as to what the quality of employment is and what sort of jobs are being created. In addition, the law is not clear on whether the subcontractors and their provision of labour is in fact reducing the obligations of the employer, although in practice this is clearly the case. Little has been said in the legislation about the triangular relationship that exists between the service provider, the employee and the client.

A mechanism should be found to draw labour-only subcontractors into the net so that their employees have the basic protection the law provides.

If up to 45 percent of labourers in the construction industry are viewed as part of the informal sector, but many of them work for large companies, it is difficult to see how the necessary levels of training will be achieved.

Effective institutional arrangements for the training of staff are also essential. It should be cause for serious concern that the auditor-general has declared the sector education and training authority for the construction industry insolvent and that the representative body of the employers in the industry has a number of court actions against it.

The head of Stats SA, statistician-general Pali Lehohla, has written about the need for a dynamic approach to the development of the statistical requirements of the growing economy (Business Report, June 14). In the construction industry a new monthly survey is being investigated.

One could suggest that before this is undertaken, a much more rigorous approach is adopted to the collection and analysis of data dealing with labour in the building industry. This would be one of the first steps to start dealing with what many are saying is a crisis in the industry due to the lack of skills.

The economists quoted in Business Report, as well as the chief executive of Murray & Roberts, say the skills shortage is most acute at the project management level. This perspective will merely perpetuate existing constraints in the industry.

Traditionally, foremen have been drawn from the corps of skilled artisans; many who are currently employed are near retirement age. Supply is insufficient for current building levels and the quality of building work and supervision is poor. There is a huge shortage of experienced artisans and foremen at the site level; project management is not going to resolve this, other than possibly seeking to use less labour.

What is needed is for industry leaders to call for a serious change in the way labour is used and ensure more thorough training takes place, otherwise broad-based empowerment and well-built buildings and infrastructure will be a chimera.

That said, it is time that Stats SA, the department of labour and the state generally took the impact of the casualisation of labour throughout the economy seriously.

  • George Stacey has an economics background and runs a joinery business


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