133,000 more South Africans said goodbye to their jobs: What's the impact of company profitability on unemployment?

Stats SA recently reported that 133,000 more South Africans have lost their jobs in the third quarter of 2024. Consequently, the excruciating pain of little to no income continues for 133 000 more South Africans. However, how closely related is this to company profitability? Well, let's find out... According to section 213 of the Labour Relations Act, retrenchment of employees is fair if it is for various reasons stated in the section, including economic reasons. Economic reasons include the ability of companies to make money or to retain sufficient funds to resume operations. This is based not only on the company's current financial position but also on its financial projections. In 2024 alone, we've seen quite a number of companies retrenching their staff for this very same reason - economic reason. Here are some of them:

• Anglo American Platinum reported a finalisation of the retrenchment of 3700 employees. The major reason behind this decision was due to the decrease in PGM prices which led to a significant decrease in its profits, reported to have decreased from R49.2 billion 2022 to R13 billion in 2023. This has been reported to also have been implemented by other PGM miners as the entire industry was experiencing a decrease in profits.

• Vodacom SA was reported to be potentially retrenching 80 employees earlier this year. This was a part of their cost reduction and financial resilience strategy. Vodacom SA was also warned of financial risks that might arise due to their ongoing legal dispute with "Please Call Me" innovator, Mr Nkosana Makate, which could result in a huge financial pay out.

• Almost 50% of The South African PostOffice's staff has been retrenched (4875 employees) due to its business rescue processes. PostOffice has been running on a negative net profit for close to a decade now, with about R19 billion in losses being reported. At some point last year, the former communications minister even reported that employees costs alone, made up 150% of PostOffice's revenue.

• The tech industry has also seen quite a number of retrenchments in IT hiring as a result of economic instability and they have been reported to still be ongoing.

• Mercedes Benz was also reportedly contemplating to retrench its employees as a result of profitability.

• Sibanye Stillwater was also reportedly contemplating retrenching about 4000 employees this year.

These examples underscore the impact of profitability on employment. In accounting, we understand the critical importance of labour costs within operating expenses, and these companies have addressed this issue effectively. While it may not apply universally, company profitability significantly influences unemployment. I assert that there is a negative correlation between profitability and unemployment: as profits increase, unemployment tends to decrease, and vice versa. What are your thoughts? Thank you for reading, see you next week Thursday.