There are different labour market models in the world. Despite debates based on ideologies, it is necessary to understand the situation through data, cases and concrete results. This analysis may lead us to startling conclusions.

By Martín Padulla

When we give thought to the concept of Labour in our region, some recurring elements come to mind. The informality rate is high, exclusion is evident, unemployment among young people is a complex issue and stiffness is notorious and inefficient as it does not assure protection. Many workers suffer a violation of their labour rights and the concept of decent work does not become a full reality. Probably, we will soon discover there is consent regarding the needs to build more dynamic, formal and inclusive labour markets that promote the decent work concept.

Nevertheless, when we analyze the ways and methods to do this, the issue becomes more complex. Should we protect the job or the worker? Do we need to neutralize the possibility of dismissal or shall we encourage hiring? Must we highlight the workers permanence in the job or must we facilitate transitions? Shall we provide further regulation or further flexibility? Compensations for dismissal o unemployment insurances with training?

When wondering about these questions, different voices appear, stating their arguments based on a theoretical background which does not always match the consequences of the actual results. And behind such consequences, there are people.

The United States labour market is based on flexibility. The parties freely agree on conditions which are practically unregulated, except matters such as minimum wage, overtime, resting time and child labour. There is a low unemployment insurance which traditionally lasted a short period of time. However, due to the crisis it has been extended for over two years. Such a flexible scheme generates employment but demands a very favourable economic scenery to function.

The Austrian model, though flexible, introduces several elements linked to the workers’ security. The company provides a certain amount of money into a personal fund of the worker, which he/she may withdrawn in case of dismissal or retirement. The money cannot be withdrawn if the worker is dismissed during the first two years of contract (to avoid fraud). If the worker goes to work into another company he/she does not lose the money as it can be transferred to the fund of the new company or to a pension plan. The funds are managed by entities properly authorized by the State and each company is associated to one of these entities, which is independent. Decisions regarding which entity corresponds to each fund are taken by the company and the company’s committee.  The model introduces two elements that turn the labour market into more flexible: on the one hand, the marginal cost for dismissal is zero, as the company has already paid the workers indemnity during the employment relationship; on the other hand, the worker does not lose anything if he/she moves to another company, which leads to labour mobility. The Public Employment Agency is extremely efficient and, working together with private employment agencies, they articulate the encounter between workers and companies.

Holland has also designed its’ labour market based on three pillars: flexible hiring and dismissal, a strong social security network for unemployed workers and a professional execution of active employment policies. Such policies are responsible for recycling, re-orienting and motivating unemployed people so that they find and accept job offers. These policies are also the reason why the unemployment rate did not go over 4% in the middle of the European crisis.

Denmark is a well known country due to its life quality. The model followed if the flexicurity model, based on the idea that it is better to protect the worker than the job. In a globalized, volatile world, with fluctuating economic cycles, the average worker will have to switch his/her job on several opportunities during his/her labour life. A flexible market, focused on the worker, facilitates this transition from one job to another while protecting him/her during such changes. In Denmark this was achieved by almost eliminating compensations for dismissal and increasing unemployment payment that entail the obligation of accepting training offers which assure a quick return to employment. In order to stop the model from suffering an incentives problem, another pillar was added: an excellent active policy on employment. Investment is high but it guarantees social and economic progress.

The concept of “widened flexicurity” is the combination of flexibility for the company and security for the worker. Low dismissal costs and high unemployment protection. Protecting the worker and not necessarily the job. Many European countries seem to be moving towards that direction after the spectacular results obtained in countries that follow this concept. It is a model that aims to secure the labour market’s adjustment, strengthening the workers security as regards the continuity of their income and social inclusion, through the development of active employment policies and the implementation of a “life long learning” system. Without any doubts it is an expensive system that demands a permanent social dialogue among the government, employers and workers.

In our region, CEPAL has said that the labour demand has become more heterogeneous and requires faster adjustments. In addition, progressively more qualified workforce is needed and this implicates training systems that enable continuous learning of new knowledge and skills based on what is demanded.

In a context of volatile markets, workers tend to demand more stability and protection. The traditional answer from labour legislation to such demand was to discourage dismissal “with no cause”, trying to avoid high levels of rotation. However, if in the current context that same volatility reduces employment stability, the target should be to reach another kind of stability: income stability, key to workers economic security. CEPAL suggests working on two directions:

– Protection systems for the unemployed

– Active labour market policies to facilitate a quick labour reinsertion.

There are two elements that condition our region in order to adopt the flexicurity model: extremely high levels of informality and elevated costs. The first may be solved with active tax policies and plans that encourage formalization. The second, with an effective re-assignation of resources, lower public expenditure and a change of focus towards productive employment.

Interaction between public employment agencies and private employment agencies should promote active employment policies. Permanent training for reinsertion would be the key to increase human capital in the region and enhance employability among young people. A methodic and systematic work for a successful reform.

Numbers show that those markets which supposedly protect labour, do actually generate exclusion, informality and discouragement. Evidence indicates that those markets which protect the worker guarantee their income, facilitate transitions, generate inclusion and diversity and, most importantly, manage to show the human profile of the economic growth.

Latin America deserves to advance on this debate.

About Martin Padulla

Managing Director of staffingamericalatina. Martin Padulla is Sociologist (USAL), MBA (UCA) and labour markets expert. He published “Flexible Work in South America” and “Regulatory framework for private employment agencies in Latin America” two books about the new realities of work in Latin America.

mpadulla@staffingamericalatina.com

About staffingamericalatina

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