WorldCity Business Magazine

Getting back to work

by Marcela Sanchez

A culture of patronage and complicated labor regulations discourage companies from creating what’s needed in Latin America: jobs.

When my father was director of classical music programming for Colombia’s public radio network, he was introduced to a new hire who, he was told, would make a big splash in that department. He asked the promising new employee to develop a program on the composer she valued most. Rather quickly, she replied that she would get right to work on the music of Dostoyevsky.

While she didn’t last long in the music division, she was quickly moved to another department where she stayed for years. After all, she had been hired at a time when landing a public sector job in Colombia was akin to receiving a title of nobility once with you, always with you.

Colombia has changed somewhat since then, and its current government is trying to implement a system of meritocracy. Still, strict labor regulations in most Latin American nations make it difficult to dismiss employees. Hiring, too, has become cumbersome. The result is that Latin American employers find it difficult to adapt to quickly changing economies and business demands.

According to “Doing Business in 2006,” a recent report by the World Bank and the International Finance Corp., employers in Latin America are hamstrung by protectionist measures. In

Nicaragua, there are not sufficient grounds for dismissal even when an employee’s work is done by somebody else. In some countries, employers must seek approval for layoffs from third parties, such as labor unions or labor ministries.

In Brazil, the combination of advance notice requirements, severance packages and penalties is the equivalent of paying three years of a fired worker’s salary. In Ecuador, it is two and a half years.

Hiring has also become costly. As soon as someone is hired, the employer has to pay payroll taxes and make social security payments to cover everything from a retirement fund to health and unemployment insurance. Those payments are two to three times higher in Argentina, Brazil and Colombia than in the United States or Norway.

Ideally, a balance would be struck between measures to protect workers and incentives to facilitate job creation. Unfortunately, according to World Bank data, Latin America suffers from the greatest imbalance by keeping strict regulations to protect those already employed and making it more expensive for employers to hire new workers. In the end, piecemeal jobs are created.

Today, an estimated 23 million people in Latin America are jobless and 103 million work in an informal job sector that includes day laborers or people selling goods on the street. In some countries, this informal sector makes up to 60 percent of the labor force. This explains why in opinion polls, Latin Americans want jobs over anything else, including personal safety, and would even consider a system different from democracy if it gave them jobs.

When the 34 democratically elected leaders of the Western Hemisphere meet this month in Argentina for the fourth Summit of the Americas, they’ve agreed to make job creation the central issue. But it hasn’t been easy to reach a consensus.

Argentina, for example, doesn’t want to leave its employees with fewer protections. Washington, on the other hand, favors greater labor flexibility, especially for small and medium enterprises.

Given that this summit will be held at the most contentious time in U.S.-Latin American relations in years, there should be no illusions that such differences will be bridged. Some officials and analysts are convinced that the discussion will remain at such a shallow level that even a summit intended to discuss job creation will avoid any serious debate over labor reform.

Still, those involved in negotiations leading up to the summit see developments worth noting. Washington, for instance, now supports a concept that first caused heartburn among Bush administration officials: the “decent work” concept. As promoted by the International Labor Organization, the U.N. agency specializing in labor issues, “decent work” combines the need to respect fundamental workers’ rights and to provide social services with the need of governments to create more and better businesses and promote a social dialogue between workers and employers.

By reconsidering something like “decent work,” Washington is recognizing that it doesn’t have all the answers. That is a welcome gesture, particularly considering Latin America’s growing skepticism toward U.S. models that have not simply been insufficient but, in the minds of many Latin American officials, ineffective.