Latin America Discovers Labor Reforms.Finally

By Krebsbach, Karen | Global Finance, January 1999 | Go to article overview
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Latin America Discovers Labor Reforms.Finally

Krebsbach, Karen, Global Finance

Latin America has made many advances in neoliberal economic reform, in privatization, and in liberalizing the economy," says Rafael Fernandez de Castro, a political scientist specializing in labor law at the Brookings Institution in Washington. "But in most countries you still have a very old labor code.The business sector-and many in the political sector-are trying to change that."

Indeed, in the last two decades most Latin American nations have pursued a rigorous timetable of macroeconomic reforms, including opening markets and lowering tariffs. Those changes were followed by financial market and tax reforms."And now we have been seeing labor law reforms coming hand in hand with changes in the pension systems, says Carmen Pages, a research economist on labor issues at the Inter-American Development Bank (IDB).

The new focus is on the region's human capital. Politicians are realizing what economists have long known:The worker's needs are changing;' she says. "So they know they have to focus on the pension system and the labor laws. On a political level you have to understand how difficult these things can be to change, particularly in Latin America where unions can be powerful."

Laws in most countries, enacted in the 1950s and 1960s and based on those of Spain, were designed as a "social contract between the employer and the worker" said Pages. "The man was responsible for the livelihood of the whole family. In general, they tend to guarantee stable, full-time jobs and to discourage short-term contracts. But more women are working today, and they need flexible schedules, and more people are building careers rather than staying in one job for a lifetime:"

The labor laws emphasize the role of the employer, not the state, as protector. Indeed, unemployment insurance is not common in Latin America. Only Brazil, Argentina, Uruguay, Barbados, Chile, and Venezuela offer some form of state-paid compensation, though none equals the generosity of systems in Europe and North America.

Another reason for the push to modify labor laws is that they have not been very effective. "It's the wishful thinking approach," says Pages. "If you put in really restrictive laws, maybe everybody will be afraid to break them. What we're finding, however, is that only the large corporations-the ones that would be noticed if they did not comply-are playing by the rules. Enforcement is inconsistent and rare.'

According to the IDB, restrictive labor codes are responsible for the increase in the number of workers in Latin America's informal economy from 51.6% in 1990 to 57.4% in 1996.

The IDB says that 80% of all Latin jobs created in the 1990s have been in the informal economy, where workers are not protected by labor laws or statefunded social security. The growing informal economy is one of the reasons why Latin America now suffers the greatest inequality in income distribution in the world, according to a 1998 IDB report on poverty in the region.

Labor law reform has been a particularly tough nut to crack in Mexico and Argentina, where unions have strong government ties and huge percentages of unionized urban workers: 49% in Argentina and 54% in Mexico.

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