Labour Market Regulation

LFMI welcomed proposals to amend the Labour Code

LFMI submitted comments to the Government and the Ministry of Social Security and Labour, welcoming Government-proposed amendments to the Labour Code. LFMI believes that removing the requirements to keep employment contracts record books, to issue monthly pay statements and to conclude labour contracts according to the model form will reduce the high administrative burden for companies. LFMI is of the opinion that such proposals as the permission to conclude fixed-term labour contracts for permanent jobs, shortening the period of notice upon dismissal, cutting down the size of severance payments, fixing average recording of the working time and others would help to transfer to the Labour Code provisions that would correspond to the existing needs of the labour market. LFMI also submitted recommendations regarding some proposals that would restrict employment regulation instead of loosening it.

As Lithuanian labour unions started to mislead the society, threatening that these changes would significantly worsen employee’s conditions and bring back serfdom to Lithuania, LFMI issued a press release and a comparative analysis of the existing and the proposed provisions of the Labour Code. The Institute highlighted that the proposed changes to the Labour Code were not drastic liberalisation, but a consistent easing of the administrative burden, which would not impinge on the employees’ rights.

LFMI’s analysis on draft amendments to the Labour Code

In this policy analysis, LFMI put forth the following recommendations:
1) to not adopt provisions simplifying the procedure of the declaration of a strike since they would sweep off the balance between those employees who do not support the idea of a strike and do not participate neither in a trade union nor in an assembly of employees nor in the secret ballot and those employees who comprise a negligent share of employees but nevertheless seek to call a strike. If passed, these amendments should be in effect on a temporary basis, i.e. as long as the provisions liberalising the Labour Code are in effect.
2) to adopt changes to the regulation of fixed-term employment contracts, envisaging a possibility to hire employees for work of a permanent nature, but to withdraw the proposed limitations and a settled period of time when this provision is to be in effect as this would essentially dwarf this provision’s benefit to the labour market.
3) to adopt provisions, laying down a possibility to dismiss an employee at the employer’s initiative by paying a severance pay in the amount of the employee‘s two monthly average wages. To withdraw from the draft law the fixed term for this provision’s validity because this major provision would contribute to job creation also after June 30, 2012.
4) to adopt provisions regarding changes in working time regulation – to simplify summary recording of working time and to remove the prohibition of overtime work. These provisions are crucial for employees’ and businesses’ more flexible adaptation to the market’s needs and for individual needs of employees.

LFMI’s analysis regarding collective labour relations and employee representation

In this analysis LFMI reviews the main problems of trade union regulation and collective labour agreements as well as puts forth recommendations for streamlining this regulation.

Greater opportunities to agree individually or collectively would lessen growing tensions in the labour market

LFMI staged a press conference to present measures which would help prepare for and curb a pending rise of unemployment. According to LFMI, in the course of an economic crisis, simplification and flexibility of employment regulation would lessen pressure for employers and, most importantly, employees.
As data from the Lithuanian Labour Exchange shows, the number of people seeking employment went up by 30 percent in October 2008, compared to October 2007, while jobs created decreased by 26 percent.642-813
Such figures signal that lay-offs will become more frequent already from the start of 2009.
The Institute highlighted that under such circumstances flexibility in the labour market was vital as never before, reminding that other countries predominantly launch reforms to increase flexibility when the situation in the labour market becomes especially acute.
The Lithuanian Labour Code has been acknowledged as rigid and inflexible both by Lithuanian businesses and foreign specialists. Therefore, LFMI proposes not to apply specific provisions of the Labour Code when employers and employees agree individually or collectively. For instance, the Institute recommends that employers and employees were allowed to agree individually on various aspects of working time – the duration of working day and working week, overtime work, vacations or the terms of firing. In addition, labour market participants should be allowed to agree collectively and not to comply with the Labour Code’s rules regarding the introduction of summary recording of working time, payment for overtime work, night work or work on national holidays.
LFMI also proposes to simplify the procedures of concluding labour contracts. More to that, it would be expedient to discard privileges applied to trade unions,EX200 exam
which undermines employers’ incentives to establish trade unions.

Socialism, Capitalism or the European Union? Labour Code at Crossroads

At present the Lithuanian parliament is debating a project of a new Labour Code which should be adopted in April – May 2002, replacing the old Labour Code which has been in effect since 1972. The adoption of this document will be a very important event since it will determine future prospects and legal status of the larger part of population directly participating in labour relations. LFMI‘s policy analysts were actively involved in the debates of the new Labour Code: they took part in parliamentary sittings and submitted recommendations on how to improve this document, underlying the need for liberalisation of labour relations. They drew attention to the changing market conditions and overall global trends, as well as called for ensuring as much as possible freedom of contract between employers and employees. LFMI‘s policy analysts also discussed this topic on radio programmes, published articles and comments in the press. We offer one of the articles to the readers of The Free Market.
 
 
Not just fairytale characters come to the crossroads. Each of us makes lots of decisions every day on which our future depends. However, some people have the power and responsibility to decide not only for themselves, but also for others. By raising their hands, members of the parliament direct people in Lithuania onto the road chosen for them by the government. One of such crossroads is the new Labour Code which the parliament is to adopt this spring.
 
As it befits a crossroad, there are three optinions available for employment regulations. The first one is to claim that human labour should not be treated as goods, that’s why it may not be exposed to market laws. Hence, the parties should not be allowed to agree on labour independantly and instead, they must be instructed as to who, how and what needs to be done. This is the road of socialism. It may be luring, but whoever chooses it is doomed to disappointment.
 
All goals which make us violate the freedom of contract are doomed to failure. Should you choose to fix a minimum wage – you are bound to have unemployment; should you choose to limit the working hours – you are bound to infringe employement regulations; should you make agreements between trade unions and employers mandatory – and you are bound to witness their endless disagreements; should you try to protect one party to the employment contract – such protection is bound to be detrimental to both of them. This is the road which, depending on perseverance and patience to learn life lessons, can lead very far. Lithuanians have already shown that they lack such enduring patience as demonstrated by the people and leaders of the North Korea who even in sight of imminent hunger would not go astray off the socialist path.
 
The second option would be to recognise that labour is what every individual may offer in exchange for the resources needed to live on and to let the labour market prosper. Often this road is labelled as jungles of wild capitalism, where the strong are just waiting to hurt the weak. It is a fallacy to use such a metaphor, since market relations are based on negotiations and exchange rather than coercion.
 
History bears witness to the fact how capitalism abolished compulsory labour, whereas in socialism it returns, sooner or later, in the form of labour camps, collective assistance, mandatory placements, constructions by the Komsomol or other. We often forget that it was nothing else but the capitalist order which allowed for opportunities to ensure welfare in each society and to turn an ordinary individual into a key player of the society. All this happened only when human labour – the most scarce resource in economy and a tool for achieving any other goals – has become human property.
 
This order is disliked by a great many from Marx to contemporary street politicians, because they see employers as forcing employees to work overtime and to receive less than is due. Such approach is partially natural: everyone wants to buy at a low price and to sell at a high one (in this particular case – his own labour). We should not forget, though, that nobody else apart from an individual himself can assess how much is “too much”, and how much is “too little”. Disregard for this simple fact forces Lithuanian people to seek for new opportunities and well-being in those countries which enjoy greater freedom. Any attempt to make the so-called “jungles” of capitalism into a park tends to transform them into a dessert.
 
Many legislators are well aware that the socialist path leads astray. The capitalist road, on the other hand, seems rather obscure, especially since the electorate represented by trade unions always lobby in the government for better pay for their labour force. This is when a salutary alternative comes into play – a “third path”, which tries to combine the best from the previous two systems. There are no landmarks on this road, and so as not to get lost on this twisting road, one needs a beacon – the European Union. It is luring a lot to go in this direction, especially since all the previous travellers have secured themselves a good life, are inviting us to follow their lead and are ready to give advice.
 
Regrettably, beacons are often nothing but a mirage… At a closer look one can see that the welfare in the European Union is created on the surviving elements of capitalism, with all regulations being in its way. We notice quarrelling people – one group of them claim that the pursuit of the golden mean shall be continued further, others think it is high time we went back to the road of capitalism. An example to that could be the ongoing discussion on temporary employees. Upon the introduction of this more flexible form of employment, many undertakings were able to enhance their efficiency, new businesses have developed and jobs have been created. Against the background of proposals to regulate it as permanent employment, one can also hear dissenting voices that this would destroy jobs and totally disrupt the already shaky economy of Europe and Germany, in particular.
 
The opinion which is gaining more ground in the European Union is that strict employment regulations is the key reason for the backwardness of its member states. The liberal states of the EU, such as Great Britain and Ireland (the target countries for many Lithuanian people who emigrate there by various possible means and who in very rare cases settle down in France, a member of the same European Union) are becoming more adamant in their discussions on employment regulations with the remaining and less liberal EU member states. One can observe the EU’s attempts to catch up with and keep abreast of the US, while the latter continuously sneer at semi-socialist policy prevalent in EU employment regulations. Moreover, often an opinion can be heard in the EU that instead of forcing the candidate countries to repeat its mistakes the EU should learn from them instead. Such discussions are repeatedly voiced during all major European forums. The recent EU summit meeting in its conclusions also underlined the need to reform employment regulations.
 
Countries that have chosen the third path escape the repercussions of socialism, but in comparison with those on the capitalist path, create fewer values, receive lower salaries and face higher unmeployment. The conclusion Lithuania should draw is very simple: instead of cherishing illusions, policy makers should adopt decisions which would do make life better and not just sound nicely, and when solving the problems of capitalism, legislators should not destroy its magnificent achievements.

The Social Myths of Labour Policy

Last autumn LFMI completed an analytical study “Employment Regulations: Evaluation and Proposals.” Based on the analysis, LFMI presented to the Economic Ministry a project of amendments to labour legislation. The proposals are currently under consideration. Also, LFMI is submitting recommendations for a new Civil Code. The Free Market readers are already familiar with some of LFMI’s research findings and proposals. This article is based on LFMI’s analysis of social policy relating to employment regulation and a paper delivered to the seminar “Evaluation of the Quality, Structure and Development of Social Policy in Lithuania,” held on February 9, 1999.
 
The creation, or failure to create, favourable conditions for employment have a major influence on the social climate. Unemployment, low wages and meagre pensions are widely regarded as grave social problems. Social policy and employment regulation should thus be contemplated together.
 
Both social and employment policies are relatively new phenomena in human history. Social “policy”, or activities intended to help people in poverty, has existed from time immemorial, but in an altogether different form. Of course, it was not the “policy” as we know it today. It refered to activities carried out by churches, philanthropic organisations and individuals. Meanwhile, employment policy, just like labour law, sprang up as late as in the times of the industrial revolution. Until then, labour relationships, which are now regulated by labour law, had been left to self-regulation or private law. Employment was subject to the general principles of private law: equality of the parties, inviolability of property, freedom of contract, and binding agreements.
 
Yet, as workers developed into a powerful organised movement, the respect for property and freedom of contract began to wane. At the forefront came to be the goals of ensuring proper working conditions, eliminating conditions for “exploitation,” protecting the employees against the employer’s abuse and improving their state of being in other ways. Consequently, the wish to perfect the traditional principles of private law gave rise to labour law and employment policy as they exist in many countries today.
 
As opinion polls show, those who believe that labour safety requirements do secure safe jobs are not so many in number as those who argue that the state should control working conditions and labour safety. So people think that things are bad but they may be improved. Specialists appear to hold the same views. Are the expectations of better regulations justified?
 
The goals assigned to employment regulations seem to be acceptable. No doubt, it’s good when people have safe jobs, are not ill-treated and earn well. But good intentions, I’m afraid, are not sufficient to achieve these results.
 
Let us look at some of the premises on which employment regulations are based. First and foremost, employment regulations are designed to protect the rights of employees, as it is commonly believed that the employer is superior to his employees. This proposition was correct at the time when the state was the only employer. But as market relationships developed and demand for skilled labour grew, employees’ qualifications and abilities became increasingly important and the employer dependent on his employees. So petty employment regulations slanted towards “ill-treated employees” have created an inflexible system that hinders the employer and the employee alike.
 
Second, mandatory working hours, wages and other rules are set on the ground that free agreements are ostensibly disadvantageous to employees. This fallacy, however, denies the fundamental fact that people behave, and enter into agreements, as suits them best. The government is only a third party here and may establish, at best, that which it thinks is best for one or both parties. Needless to say, it is difficult to determine what other people need, and the state is no exception here. Let us take, for instance, regulations of working hours and vacation. These prevent people from working longer and earning more. Individual wishes and interests are left out. Naturally, these restrictions are frequently circumvened in practice. Even bureaucrats work overtime without getting adequately paid. One of the reasons is that the law prohibits advance agreements on overtime pay.
 
Third, to illustrate the “unregulated chaos,” the champions of employment regulations often picture a factory in the middle of the previous century with people working long, backbreaking hours for peanuts. But this is viewed from today’s standpoint, disregarding the fact that those formidable conditions allowed people to avoid much worse circumstances elsewhere. The belief that freedom of contract brought adverse conditions for working people is correct, but if not for freedom of contract, life would have been even worse.
 
The fourth problem revolves around the common belief that new regulations do not cause any damaging side effects. However, this is not always the case. Take the minimum wage, for example. What of an increase in the minimum wage if people lose jobs afterwards and, worst of all, no new jobs are created as a result?…
 
Employment regulations which are based on the said premises are misguided and unacceptable. Some argue that it is essential how labour-policy decisions are made. The Scandinavian model, which involves a tripartite co-operation of trade unions, employers and the state, has become increasingly popular of late. It is not even worth asking by what right some employers speak up for all employers and trade unions for all employees. The worst of it is, they often evade the question whether to regulate or not in the first place. What they do is determine straight away who will regulate and how. Democratic and authoritarian decisions do not differ much, if I may. Decisions regarding employment regulation are political, not voluntary, and cannot ensure the greatest possible benefit to the employer and employee.
 
Although labour regulations are often aimed at reducing social risks and poverty, restrictions placed on agreements and mandatory administrative rules bring only fragmentary, short-term benefits to individual persons. The social effects are invariably damaging in the long term.
 
These are general remarks about the social consequences of labour policy. The following presents the conclusions of LFMI’s analysis of labour policy as formulated in the study “Employment Regulations: Evaluation and Proposals.”
  1. Employment is regulated in an excessively minute detail. The goals of employment regulations are in many cases unattainable. Established norms are frequently dodged or obeyed as a mere formality. Labour law should define only fundamental principles of employment, without prescribing petty details.
  2. Freedom of contract is a key principle of employment. Its suppression has damaging effects on employees, employers and competitiveness.
  3. Labour law should not be used to regulate all forms of human labour. The object of labour law should be limited to employment in its narrow sense. The concept of labour contract should be narrowed to reflect the specific nature and essence of labopur relationships. The norms of labour law should not be used to regulate other relationships.
  4. Employment regulations should not be used to address the problems of tax collection, as this inhibits civil relationships and does not improve much tax collection.
  5. Overly stringent protection of employee interests has negative effects on the economy and in many cases turn against employees themselves. It is therefore important to define only minimum standards and leave more room for mutual agreements between parties involved.
  6. Labour law should not be used to address problems of selected segments of society, as this imposes excessive and economically unjustified costs on employers and harms the very objects of social security. Social problems should be addressed by social measures.
  7. Labour safety is over-regulated and the official attitude needs wholesale change. It is essential to prescribe specific requirements rather than procedures and to apply them only to dangerouos jobs More safety may be achieved by lifting bureaucracy and promoting internal controls.