Agreement with the IMF foresees a labor reform with three axes
The agreement with the International Monetary Fund (IMF), to receive USD 4 200 million, contemplates the commitment that Ecuador make labor changes to promote the generation of more employment, reduce labor rigidity and improve competitiveness.
In the letter of intent with the multilateral, released on March 21, the Government reported that the country requires a labor reform; however, this will not be carried out during 2019. The reform will focus on three aspects: new types of contracts that allow more participation of women and young people in the labor force; the increase of the probationary period and the reduction of hiring and firing costs, which would imply eliminating severance payments when workers voluntarily resign.
In the first axis -new forms of contracting- the Minister of Finance announced that a reform could be included to regulate teleworking. This refers to non-contact work activities, in which the worker fulfills his obligations by strongly relying on the use of information and communication technologies.
This modality is regulated by a Ministerial Agreement, but it is not included in the Labor Code as a form of contract. “It would be necessary to regulate the safety and health standards in this type of work very well,” said Gabriel Recalde, director of the Center for Labor Policy Studies.
Recalde added that new forms of contracting are not enough. He believes that incentives are necessary for companies to open more spaces for women and young people. “For example, the reduction of the percentage in the payment of income tax or VAT refund for hiring young people”. The Government currently has two programs with which it seeks to increase the participation of young people in the labor force: My First Job and Youth Employment, through which it returns companies that hire young people, a part of the remuneration, contribution to social security and other benefits according to the program.
USD 19.1 million of the first IMF disbursement received by the Treasury this month will go towards these two plans. In order for companies to hire more young people, facilities must be created for them to enter first as interns, in order to make it easier to disengage them if they do not meet the required profile, said Patricio Alarcón, spokesperson of the Ecuadorian Business Committee.
He added that it is necessary to modify the work schedule of 40 working hours in five days. “40-hour days should be allowed in three and a half days. Thus the employee can occupy the rest of the time in other activities that generate more income. Another proposal of the business sector is that the days of 40 hours a week can be extended until Saturdays, without this implying that the employer has to pay more for the complementary hours.
On the increase of the trial period prior to the signing of the fixed contract, the businessmen propose that it be extended up to two years in the case of new companies. “When businesses are starting, they do not have the necessary resources to pay for the separation of a person,” says Alarcón.
The Executive has not released the date to send the labor reform to the Legislative, but this will not be part of the Law of Production Promotion 2, which will be sent this year. The priority on the Government’s agenda for 2019 will be fiscal and tax reforms, which will be sent between May and October.
In the analysis document of the economy conducted by the Fund this year, known as Article IV, it is projected that unemployment in the country will grow from 3.7% in 2018 to 4.3% in 2019. Hence, the business sector believes that it is a mistake for the Government to postpone labor changes for one year. “We must encourage productivity in the private sector, and without the reform that will not happen,” said Alarcón.
For José Villavicencio, president of the Workers Unity Front (FUT), the proposed changes undermine labor stability, freedom of association and the right to collective bargaining. It fears, in addition, that it is tried to eliminate the retirement employer. “It is worrisome that the consequences of IMF conditions are paid by the worker and the people. In practice, what is required is a labor policy that generates employment and that, at the same time, there is a general increase in wages and salaries “. (I)