Austerity and labour market deregulation: High risks and weak justifications

Abstract

16 | International Union Rights | 24/1 FOCUS | WORLD BANK AND IMF Austerity and labour market deregulation: High risks and weak justifications Financial crises can affect labour rights in a number of ways. Obviously, financial crises may reduce economic growth and employment and impair the right to work. However, in addition, governments have often undertaken reform measures that directly — such as reduction in wages and employment in the public sector aimed at reducing public expenditure or labour market deregulation in the private sector purportedly to increase competiveness — or indirectly — by creating economic conditions which increase pressure on workers, reducing wages or threatening employment, for example through privatisation of public enterprises, trade liberalisation or cutting domestic subsidies — affect labour rights. Labour-related austerity policies have been openly pushed by a number of official key creditors, including the World Bank and the International Monetary Fund (IMF), together, more recently, with the European Commission and the European Central Bank — the so-called Troika. Especially since the late 1980s, labour-related conditionality has featured prominently in IMF financial assistance programmes. Indeed, around 50 percent of all lending programmes have involved one or more labour-related conditions over the period from 1994 to 2007. Since then, the number of IMF programmes with labour conditionalities appears to have fallen, but still, between 25 to 40 percent of IMF programmes adopted until 2014 contained labour-related conditions relating to the public or the private sector1. International financial institutions have promoted labour law deregulation not only through formal conditionality to financial assistance arrangements. IMF has also made use of other instruments to advocate for deregulatory labour reforms, such as its Article IV consultations in the context of its bilateral macroeconomic surveillance2. These involve a certain amount of pressure and may also affect a country’s capacity to obtain financing elsewhere, given that potential or actual investors and bilateral lenders often have recourse to these reports3. Labour law issues in economic adjustment programmes While IMF has occasionally supported moderate improvements in labour standards4, its prevalent stance regarding labour law has been a deregulatory one. Close to one third of the available letters of intent addressed by governments to IMF between 1998 and 2005 contained commitments to be flexible with labour market regulation5. Early cases can be tracked to the 1950s, such as when IMF required Argentina to control wage increases. Adjustment measures implemented during the 1980s in the context of the Mexican debt crisis entailed a considerable reduction in both the number of public employees and their salaries, among others. The relevant reforms ranged from minor modifications to comprehensive reform packages with far-reaching amendments to both collective and individual labour laws. For example, during the 1990s, Côte d’Ivoire undertook reforms in the context of an IMF/World Bank-supported economic adjustment programme, which included the deregulation of the rules concerning temporary employment, dismissal and overtime, and involved the decentralisation of the collective bargaining system. Similarly, the structural adjustment programme carried out in Argentina during the 1990s entailed individual labour law reforms, involving, for instance, extending the duration of the probation period and collective labour law reforms, which granted firm-level agreements priority over sectoral agreements. In recent years, austerity-driven labour law reforms have remained a widespread trend. No fewer than 89 countries implemented such reforms Austerity-driven labour law reforms have remained a widespread trend. As a result, the level of protection of labour law has been substantially reduced Juan Pablo Bohoslavsky is the United Nations Human Rights Council-appointed Independent Expert on foreign debt and human rights Austerity-related labour law reforms between 2010 and 20157 9 18 40 34 East Asia and Pacific Highincome countries Number of austerity-related labour law reforms Number of cuts in or caps on public sector wages 3 7 6 8 South Asia Middle East/ North Africa 11 14 12 17 Latin America/ Caribbean Eastern Europe/ Central Asia 8 32 SubSaharan Africa FOCUS | WORLD BANK AND IMF 17 24/1 | International Union Rights | between 2010 and 2015 and more than half (49) of them were implemented in developing countries. In addition, 130 countries had reportedly implemented or were contemplating cuts in or caps on publicsector salaries, more than two...