BARRIERS AT LABOR MARKET AND PROPOSALS OF PRIVATE SECTOR FOR THEIR ELIMINATION

1. BARRIERS AT LABOR MARKET AND PROPOSALS OF PRIVATE SECTOR FOR THEIR ELIMINATION Slaviša Delić Montenegro Business Alliance Solun, May 27, 2005

2. Briefly about Labor Law • Labor Law has been adopted in July, 2003 • Changes are done in December, 2004 • The Law has 156 articles • Valid Labor Law anticipates existence of economy with large number of stable jobs

3. General Economic Situation in Montenegro • High level of unemployment, primary because of the lack of investments • High level of employment in grey economy. As consequence it has increase of pressure on: (i) social funds and (ii) everyone who pays taxes and contributions • Most of existing employment is situated in areas in which sufficient number of workers already exist: (i) public sector and (ii) large quasi private enterprises

4. Review of Existing Law Regulations • Regulation is primary directed on maintenance of existing employment in state-owned and privatized enterprises • Freedom to make agreements is violated, as one of the most significant market principles. • Protection of workers is too emphasized. The Law regulates 48 cases in which employers are to be fined 50 to 200 lowest prices of work and about 60 articles about rights and protection of employees.

5. Review of Existing Law Regulations • Collective agreement includes many elements of arbitrary and bureaucratization in work relations. Represents inheritance of the past and it is not adapted to market conditions for doing business. • The role of the Union is over dimensioned (employers are obliged to pay a membership fee to the Union, although they aren’t, according to definition, members of the Union). Law regulations are at edge of Union interference in business policy.

6. Guiding ideas-basic recommendations concerning regulation of labor market • The Law has to contain general frame of basic rights, in which free agreement between worker and employer is going on. In all of that the Law and the state appear as protectors of agreement and guarantees of its execution. • Necessity to protect workers in privatized enterprises should be realized through concrete agreements with buyers of enterprises. If this protection is included in general regulation it represents burden to all enterprises and employees.

7. Guiding ideas-basic recommendations concerning regulation of labor market • More liberal labor market brings about greater possibilities to open new jobs. Too much of regulation, which disables free negotiations between worker and employer, represents limitation of new employment. Plans for rationalization of state administration, as well as Agenda of economic reforms which as one of its priorities has support of entrepreneurship and opening of new jobs, should be kept in mind. • Collective agreement shouldn’t relate on those who were not included in its passing

8. Unemployment in Montenegro and measures for its reduction • The level of unemployment in Montenegro is above 20% • Taxes and contributions in Montenegro are at level of around 90% of net wage. Just for comparison, in surrounding countries this level is: Serbia 70%, Bosnia and Herzegovina 68%, Croatia 64%, Macedonia 70%, Slovenia 62%

9. Unemployment in Montenegro and measures for its reduction • MBA analysis of reduction of taxes and contributions on wages • Workers and employers and the state would have benefits due to reduction of these charges Benefits for employers: • Reduced operational costs; • Increase of investments; • By increased budget for wages provision of professional cadre is possible, and existing workers are more motivated and more professional in their work by increase of wages; • Necessity to express wages on minimal level (due to high taxes and contributions) and usage of cash money (outside of legal flows) for payment of the rest of agreed wages to workers, would be eliminated;

10. Unemployment in Montenegro and measures for its reduction Benefits for workers: • Wages of workers would be at higher level, really expressed; • Contributions would be paid regularly and in real amount; • Provided social and health insurance; Benefits for state: • Reduction of grey economy; • Increased employment; • More stable sources of income for the budget of Montenegro; • Increased investments; • Real expressions of wages and real payments of taxes and contributions; • Growth of standard;

11. Instead of conclusion To increase employment in Montenegro, considering Labor Law, it is necessary to: • replace unnecessary bureaucracy procedures which burden employers, • not regard enterprises and investors as opponents to workers, • labor market becomes more flexible, where employment will be considered as mutually beneficial agreement between employer and employee, • make the Law in every aspect more flexible from the viewpoint of potential investors i.e. capital owners. • supplement regulations concerning prohibition of competition

12. Instead of conclusion • If we want economic recovery we must change our attitudes concerning doing business • We must understand that a person who invests money and takes over a risk shouldn’t be a subject to sanctions and to be subordinate to employees • Many other laws influence ambient for doing business • Through private - public sector partnership make better conditions for doing business • This is a common interest and private sector represented by Montenegro Business Alliance is ready to respond that challenge THANK YOU FOR YOUR ATTENTION!