While South Africa’s existing Labour Relations Act has “sound intentions”, a major, and unintended, feature of the regime has been its inability to link remuneration to productivity and profitability, Reserve Bank governor Gill Marcus said at the twenty-sixth Annual Labour Law Conference on Wednesday.

While the ambit of the Act established quasi-legal dispute resolution mechanisms to be used between parties during wage negotiations, the intention was that, within these frameworks, firms would negotiate specific agreements linking wage increases to productivity gains.

“In practise, however, this is the exception rather than the rule,” she said.

However, Marcus emphasised that, while the existing labour regime may not explicitly dictate greater linkages between pay and performance, such agreements could forseeably be reached without any changes being made to the current policy.

“To the best of my knowledge, such agreements are possible within the existing legal framework,” she said, adding that the challenges around labour relations had been brought into greater focus in context of the current “employment crisis”.

Her comments followed the release of Statistics South Africa’s latest Quarterly Labour Force Survey (QLFS), on Tuesday, which revealed that South Africa’s unemployment rate rose to 25.6% in the second quarter of the year.

This puts the number of unemployed people in the country at 4.73-million – the highest level recorded since the QLFS started in 2008.

Marcus further asserted that structural reforms aimed at improving economic efficiency were needed to raise the level of employment to redress “deep structural weaknesses” in the economy, which were preventing faster economic growth and higher labour absorption.

She identified these structural weaknesses as legacy issues; an uncompetitive product market; low levels of fixed capital investment; a low savings rate; inadequate progress in the quality and accessibility of education; and poor public services.

Potential mechanisms to redress these issues may involve introducing tougher anticompetitive policies and other economic reforms aimed at lowering costs in key industries.

She further averred that labour market reforms, which facilitated the movement of labour from one sector to another, were necessary to enable the economy to adjust to changing economic and market conditions.

Describing the current levels of unemployment as a “massive waste of lives and resources”, the governor noted that, while central bank policy contributed to macroeconomic stability, which led to job creation, the bank’s ability to influence employment levels as otherwise limited.

“Beyond these important contributions to the broader economic environment, central banks do not have the policy instruments to create jobs directly,” she stated.

She added that the South African Reserve Bank did not have the institutional authority, or the tools, to undertake the structural reforms required to ensure that the economy would grow, and unemployment would decline, at a faster pace.

In addition, the ability of central banks to channel funding to one sector of the economy was limited.

“Quasi-financial institutions, such as development finance banks, are more suited to instituting such fiscal and industrial policies, and it also falls within their area of responsibility,” Marcus noted.

Commenting on future employment prospects, Investec Bank added that low employment levels were likely to remain a feature into the second half of the year.

“Gross domestic product forecasts are being revised lower and, for as long as the economy continues to function below potential, unemployment levels will remain elevated,” the bank said in a statement.

Similarly, Nedbank expected the unemployment rate to remain high in the short term, as firms remained cautious of expanding capacity and employing more people in the current challenging economic and labour environment.

“This, along with the poor economic growth outlook, is likely to persuade the reserve bank to maintain its accommodative monetary policy stance well into 2014,” it commented.