The real need for labour reform


The real need for labour reform


Friday, October 25, 2019

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On October 20, a newspaper article titled 'Millennials struggling to survive on low-paying jobs', lamented the fact that many young people entering the job market are not able to find jobs that allow them to create a solid financial base.

My response to this is, why are we surprised about it? Isn't this what we sowed? If you plant pepper you can't get oranges. So why do we always expect to reap what we don't sow?

Anyone who has been reading my “jottings” over the years, or listened to my commentary, knows my views on our labour laws and industrial disputes environment. I have always stated that the labour laws and the way we manage industrial disputes would eventually lead to the erosion of the labour market and that those at the lower income levels of the market would suffer most.

I don't know why governments over the decades have always thought that they can legislate against the workings of the natural direction of capital and returns. It did not work when we tried to fix the exchange rate, or put on exchange controls. It doesn't work when you maintain high duty levels on imports. And it will never work if you basically tell employers that they must put up with low productivity, or even stealing, because they failed to follow precise proper due process.

In the 2013 International Monetary Fund (IMF) agreement labour market reform was recognised as one of the important pillars to address labour productivity issues, which has been the main inhibitor to economic growth.

A few years ago, the Inter-American Development Bank (IDB) did a study which showed that because of the way we organise our labour market many people were finding themselves without pension or health insurance, as employers were hiring more people on short-term contracts. And I can guarantee that if there is any attempt to legislate against “contract work” then it will still get even worse for labour, as people may move more to automation, as it will get cheaper.

Many people have misinterpreted my views as being against “labour”, when in fact the contrary is true. It is because I am for long-term sustainability and higher reward for labour that I take that view.

I personally believe that those who unfairly treat labour should be brought to book and made to pay. But it cannot be that we go to the extreme where even if someone is found stealing, and after much legal cost for the employer because due process was not followed, they are either forced to take back the worker or that after the employer has won the case they have no costs awarded to them.

If one thinks about the fact that most labour is in small to medium-sized businesses, then it seems logical also that these would be the people most unlikely to afford the costs. In large companies they can hire professionals to protect them from any liability, or because they are large they can afford to absorb the unproductive labour while they go through the process.

In either case though, what happens is that productivity falls.

Think about the fact that productivity is affected by this poor labour environment. If you look at the cumulative effect over the years, is it any surprise  that we struggle to export more or have higher levels of economic growth, if our labour productivity continues to fall?

And if labour productivity continues to fall then what does it means for our competitiveness, as a country?
And if our country competitiveness declines then won't our dollar continue to depreciate?

And if our dollar continues to depreciate, and productivity declines, then won't company profits (in real terms) decline in relation to previous years?

And if company profits decline then won't wages and salaries decline?

And if salaries, in real terms (when compared to other countries), continue to decline then we end up at the point where people entering the labour market will get less income in real terms.

While this is happening, asset prices will still increase in sympathy with inflation. The result is of course that people entering the labour market find that they have to work for a much longer time than those who entered the market in earlier years, before they can afford the house and car.

This is not rocket science, but then again I am not a politician.

This is the same challenge we have with crime. We don't understand that if we create an environment of disorder, where people are allowed to set up stalls anywhere, drive how they want, play music as loud and long as they want, loiter on sidewalks, etc, then we create a fertile ground for crime.

And without trying to address underlying law and order issues, we have been throwing money and time at addressing the symptoms of crime.

This was the same way we approachedfiscal management, where for many years we would run a fiscal deficit and borrow money, until our debt to GDP ran up to 150 per cent, and it was no longer sustainable.
Eventually, because of circumstanses we had to take the right decisions and understand that fighting against the natural movement of capital is a losing battle and it's best to create policies for capital to want to invest and benefit the country.

Similarly, we seem to be surprised when rewards for labour continue to fall, and our best minds seek employment elsewhere, when we have deliberately created an environment for short-term “pleasure” while sacrificing long-term growth.

Hopefully we will see the light before it is too late.


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