National 6 (Spotlight Weekly)

Labor Market: Security Vs. Flexibility

By NARAYAN MANANDHAR

Nepal's labor market is uncomfortably poised between trade unions' demand for increased job security and management's call for flexible workforce. This security-flexibility debate is taking place in Germany, Italy and Sri Lanka as well. In Sri Lanka, the employers have taken their stand that once an employee is being fired from work, the courts should not uphold reinstatement decision. The decision should be traded off with due financial compensation. A similar issue is being raised in Italy where a professor helping labor law reform was assassinated last year. In Germany, it is proposed that, in larger companies, the laid off worker has two options to choose: either to accept fixed level of financial compensation or to go to a tribunal for protecting his/her job but abandoning all rights to financial compensation.

The employers in Nepal are calling for flexible labor laws - laws that allow them to adjust their workforce as per the conditions in the market. The employers do not want to commit themselves to give permanent employment, after 240 days of probationary period, as being prescribed in the existing labor law. Trade unions, on the other hand, are asking for increased social security measures, basically pension schemes. More than 90 percent of Nepal's labor market is in the informal sector where social security is conspicuous by its absence. Trade unions are a bit worried that the employers' call for flexibility measures may further informalize the formal labor market. Though the size of the formal labor market is small, it is organized, therefore, the voice of the trade unions are loud.

There is both the mixture of myth and reality in the current debate on labor market flexibility and/or security. First, there is widespread belief (or misbelief) among the employers that an employee's job performance is inversely related to his job security. If you give an employee a permanent status (or a open contract) on day one, his performance plummets on day two.

This belief is widespread not only in government bureaucracy and state-owned enterprises; it is equally profound in private sector business enterprises. his psychological assumption has been the (mis)guiding factor for the employers to call for flexible workforce rather than the economic factors emanating from the unpredictable market forces. Because of this deep psychological factor, employers are interested in employing workers on a temporary, contract, part-time or piece wage basis.

If workers hired on a temporary status are more motivated to work then, by economic reasoning, he or she is supposed to be paid more than one on a permanent status. But the fact is other way round. It is estimated that, on an average, an employee on a permanent status earns 33 percent more than the one hired on a temporary basis. Once an employee is hired on permanent basis, he is entitled to have provident fund, annual grade increment, enjoys far number of paid leaves, dasai allowance, medical facilities, gratuity amount etc. These earnings and facilities put him far above the one hired on temporary basis. This is the reason why trade unions are demanding an automatic permanent system after the lapse of 240 days of probationary period. This is also the reason why trade unions are dead against the policy of hiring employees on a contract, temporary or on part-time or daily-wage bases.

By demarcating workers into permanent and temporary workforce (including part-time, contract and daily wage) and by paying more for (less performing) permanent workers, we have essentially created an absurd labor market situation. Another absurdity comes from the time perspective of the employers and the trade unions. The flexibility interest of the employers is concerned with avoiding long-term labor costs or commitments like annual increments and gratuity payments. The security interest of the trade union, on the other hand, is centered on preserving these 'rights'. Because of this very difference in the time perspective, we have created an absurd minimum-wage system where allowances are increased more than the basic minimum wage.

Unless the employers' real demand for flexible labor force and the trade unions real demand for increased security are properly addressed, mere enactment of law can be of little help in resolving the present crisis. The only possible way out is to revamp our artificial system of labor market demarcation into permanent and temporary jobs entailing substantial differences in wage payments. Unless the pay is closely tied up with performance, there is no point in differentiating the labor market under temporary or permanent positions. Provident fund, annual grade increment, leaves and facilities should be made available to all employees, irrespective of their status. It is improper to discriminate against employees on the ground of their temporary status. Trade unions should also know that the security of the job is far more important than the security of the jobholder. At present, job security is taken to mean the security of the jobholder. This is a false notion. We cannot have job security in the absence of the job itself.