Labour Pains?

LABOUR REFORMS: The Central Bank Annual Report for 2005 says that there is an urgent need to reform our labour legislation to make them more flexible. The Bank points out that the current labour legislation may be perceived by investors as a reversal of the earlier efforts to make labour market more flexible and market friendly.

As a person who is involved in the mercantile sector for a long time, I believe most of Sri Lanka's labour laws are out-dated. When they are not outmoded, our labour laws are truly draconian.

In addition to the colonial bureaucratic physical infrastructure, you find regulations that make it next to impossible to discontinue workers from the services.

This set-up goes a long way in explaining why Sri Lanka has received only a fraction of the foreign investment that has transformed many a South East Asian country from developing to developed nations in the past two decades.

Today no employer wants to recruit people over his bare minimum requirement because of the current laws. Production has increased and new companies are coming up, but employment in the organized sector has not increased proportionately.

In short, Sri Lankan labour market is characterized by a sharp dichotomy. A large number of establishments in the unorganized sector remain outside any regulation, while the organized sector has been regulated fairly stringently.

It can be reasonably argued that the organized sector has provided too much of job-security for too long, while the unorganized sector has provided too little to too many. Consequently, these laws have restricted labour mobility, have led to capital-intensive methods in the organized sector and adversely affected the sector's long-run demand for labour.

Perhaps there are lessons to be learnt from China in the area of labour reforms. China, with a history of extreme employment security, has drastically reformed its labour relations and created a new labour market, in which workers are highly mobile.

Although there have been mass layoffs and open unemployment, high rates of industrial growth especially in the coastal regions helped their redeployment. In spite of hardship, workers in China seem to have benefited from wage growth, additional job creation and new opportunities for self employment. Another classic example of labour flexibility success is Bajaj Auto of India.

Seven years ago, they employed 22,000 people and produced million vehicles a year. Today they produce 2.3 million vehicles with half that number. Yes, 11,000 people lost their jobs, but they got decent compensation, some as much as Rs. 2 million.

The moral of the story: Bajaj hadn't really reduced the workforce. The 11,000 that now have jobs would have lost theirs too if the employer had not taken that vital decision. Flexible labour policies, better infrastructure, reduced corruption - all these and more will have to happen for Sri Lanka to sustain a reasonable economic growth. And, without growth, there can be no reduction in poverty.

The present thrust for labour law reforms is only to facilitate the adoption of new strategies such as: re-engineering (measures aimed at cost cutting), downsizing workforce, substitution of skilled, often hi-tech, workforce, replacing unskilled workers; and search for flexible labour utilisation arrangements as and when needed. However, no sane employer would adapt such last-resort action unless there is social and economic justification.

Some trade unions are of the view that the theory of creation of additional jobs by diluting the labour laws is highly concocted. They maintain that the GDP has no relevance for more jobs. It does not reflect the miseries and deprivation of the masses. ''In the name of flexible labour laws the Multi National Organisations and the domestic industry will be heavily empowered whereby they can exploit the workers as they wish.

It will be indeed free for all situation,'' a veteran Left leader said. ''Let us look for Sri Lankan model without seeking to emulate other models,'' he added.

We must surely recognise the workers' concern over the labour flexibility policy pursued by the industry globally. While recognising the need for increased flexibility in labour markets, one cannot glibly talk of an uncritical endorsement of the hire and fire approach, more so, since the institutions of social security, particularly unemployment insurance are not well developed in our country.

Even then, living as we are in a world characterised by considerable uncertainty and fluctuations in demand as well as fast changing technological conditions, there must be an honest objective assessment of the employment impact of our economic policies, including labour laws.

Structural reforms in a democracy, to be durable, must involve consultation with all stakeholders, particularly the workers and trade unions.

Of course, the Government should be committed to implement labour reforms with a human face. The working classes of our country should be assured that the Government shall never pursue a path, which affects adversely the interests of the workers and the toiling masses of our country.

Given the evidence showing the benefits of flexible labour markets and that our labour markets are not performing as well as they should, it is simply irresponsible for any political party or trade union to promote further rigidity in the country's labour laws.

If they succeed in their plans, this nation's labour market performance will decline further.