Kirsten Sehnbruch Center for Latin American Studies UC Berkeley

1. Employment Policy in Latin America: The Missing Link between Economic Growth, Poverty and Income DistributionClass 3 Kirsten Sehnbruch Center for Latin American Studies UC Berkeley Feb 11 – March 4, Fridays, 10.00am – 1.00pm

2. Compliance with Labor Legislation: de facto or de jure? • Whenever we assess the impact of labor market legislation in LA, we have to consider whether it is really applied in practice. • eg. a large proportion of severance pay is never paid • Employers are likely to avoid complying with legislation whenever they can get away with it • Large companies with unions tend to have better rates of compliance with legislation

3. Enforcement of Legislation • requires a labor inspectorate that operates at a national and regional level (often a department attached to the ministry of labor) • requires knowledge of legislation by both workers and employers • requires institutionalization of a functioning complaints procedure • requires the existence of labor courts who can adjudicate complaints and enforce legislation

4. Methods of Enforcement • Labor inspectors (random or non-random checks) • Complaints from workers or union officials (normally through a labor inspectorate) that occasion a visit from the inspector • Accidents or other incidents occasion an inspection • Dismissal/resignation of a worker causes a complaint • Consequences of non-compliance: accidents, fines, public denouncements, and press reports

5. Data on Enforcement • There is no reliable data in LA on the enforcement of specific labor regulation issues, For Example: • what proportion of severance pay is actually paid? • how many companies prevent unions from establishing themselves? • how many workers are dismissed because of intended or actual union activity? • what is the real rate of accidents? • what is the rate of compliance with maternity legislation, including unlawful dismissal?

6. Poverty is in the definition • Monetary limits (eg. World Bank) • Basket of goods (individual LACs and CEPAL) • Relative and absolute poverty lines • Alternative non-income measures to poverty (HDI and other basic indicators)

7. Alternative Measures of Human Development • HDI (life expectancy, literacy + GDP) • GDI (same, but segregated by sex) • GEM (Gender empowerment index: % of women holding: parliamentary seats, executive positions and prof./technical jobs) • HPI (Human Poverty Index: % of population unlikely to survive to 40, access to basic services, malnutrition in < 5, income distribution, % of poverty) • None of these measures include a component based on employment • All of these indicators are much criticised and controversial: arbitrary, insensitive, summaries, methodology and technical calculation, etc. • Their main achievement is that they have shifted attention away from GDP/capita as a measure of development

8. Approaches for thinking about Poverty • Traditional (utilitarian): income per capita • ‘Trickle down’ through growth (neo-liberal) • ‘Targeting’ social expenditure (neo-liberal plus) • Basic Needs (mentioned in Franko) • Social Exclusion • Social Capital • Empowerment • Capabilities • There is no employment based approach, but all of these approaches can focus on employment

9. Economic Growth and Poverty • Economic growth generally reduces poverty • The question is, to what extent? • The extent depends on the employment it generates • You can reduce poverty without economic growth, but this is more difficult: support-led or growth-led policies • The former act through non-employment dependent social policies, the latter act through employment dependent social policies

10. The Trickle-down Effect

11. Components of Social Security in LA (1): Employment related • Pension systems (private, public and minimum guarantees) including disability provisions • Health insurance (private and public) • Unemployment insurance (in some LACs) • Accident and work related illness insurance • Union related benefits (eg. health, educational and holiday facilities)

12. Components of Social Security in LA (2): state benefits not related to employment • Survival pensions (below minimums) • Emergency and primary healthcare, including dental care • Monetary benefits • Subsidies for food, water, electricity • Meal programs at schools • Poverty programs (eg. Contigo in Mexico) • Housing subsidies • Credit facilities

13. Poverty Programs: Chile Solidario: Programa Puente • Program targeted at the most needy (indigent) • Administered through municipalities • Participants selected based on a score (ficha Cas) • Links beneficiaries with existing social programs that they are entitled to (eg. pensions, primary health care, pre-school, material goods) • Social worker goes to family’s home to discuss their needs, objectives and to provide psycho-social support • Subsidy facility (goods not money) with training to insert participants into the informal labor market

14. Problems with the Program • Selection method of families • Municipal resource constraint (including the time allocated for social worker visits) • Most of the families have social and/or psychological problems that cannot be addressed in the available time and are not addressed by linking them up with relevant support groups • If these problems are unresolved, families cannot function better • Institutional disfunctions (central vs decentralised administration) • Most of the micro-entrepreneur projects (subsidies) fail • The program ultimately fails due to lack of employment opportunities

15. Poverty and Employment • Working poor: insufficient earnings from a regular job to sustain a family (one minimum wage per household will not lift a family above the poverty line in most countries) • Working poor: Underemployment of working members of a family (either hours or income) • Participation: Inability of all working age family members to participate in the labor market (either through lack of available work or childcare facilities) • Earnings crisis: either through loss of employment, health problems or other temporary problems ( ex: Marco’s case) • Family break-up means main earner disappears or wages have to be shared between two households • Poverty through lack of savings during working life (no pension rights)

16. Child Labour as a manifestation of earnings poverty • Child Labour at the cost of continuing education • Child Labour in addition to education • Enforcing legislation on child labour may increase overall poverty of a family • Possible solutions?

17. Pension Systems • Traditional pay-as-you-go • Company pensions • Private pension systems (either on their own or in addition to other forms of pension) • Latin America: the end of ISI and the debt crisis (followed by structural adjustment) required massive pension reforms (much more extensive than in any developed country)

18. The Model for the reforms: The Chilean Pension System • Implemented in 1981, first fully privatised pension system • Wage-earners contribute 12% of their wages to an individual account. • No contributions from employers • Workers get to chose between several pension fund managers who are supposed to compete with each other • Investment of pension funds strictly regulated and limited to certain investments: have produced high returns since inception of system • Upon retirement: worker either buys an annuity or is paid out regular amounts from savings • State guarantees minimum pension after 20 years of contribution (insurer of last resort)

19. Problems with the System • Low coverage of total labour force • Unstable employment patterns: half the labour force will not achieve minimum of 20 years contributions, and therefore not be entitled to a minimum pension • State has to guarantee pensions of a significant proportion of the labour force • The others will receive low pensions • Significant regulatory concerns that prevent real competition, and entrenched political interests of fund managers

20. Health Insurance • Public, private and mixed systems (more diversity in the systems than in pensions) • Problems with public systems: under-funding • Problems with private systems: contributions (generally a proportion of wages) may not be enough to cover premiums for full insurance • State has to act as an insurer of last resort • Regulatory issues (renewal of contracts, amount of premiums, transparency, competition)

21. Unemployment Insurance Systems in Latin America • Nothing • Employment Generation Programs (almost all LACs) • Unemployment benefits (Ar, Br) • Severance Payments: approx. 1 monthly salary per year of service (all LACs, ex Peru) • Individual Savings Accounts (Br) • Mixed individual savings account and benefit schemes (C, P, Ec?)

22. The New Model: The Chilean Unemployment Insurance Scheme • Covers all dependent workers excluding domestic service, including short term contracts. • Personal savings accounts are set up for workers, funded by both the employee and the employer. • In case of unemployment (whatever its cause) withdrawals can be made from these accounts. • Under certain conditions the unemployed will have the right to support from a “Solidarity Fund” financed by the government and employers.

23. Structure of the new Unemployment Insurance Scheme

24. Factors that determine entitlements to the benefits of the scheme • Level of income in previous job • Type of contract held • Job tenure (min 12 months) • Duration of unemployment period • Reason for becoming unemployed • Age of the worker • Potential access to Solidarity Fund

25. Insurance for workers with short-term contracts • Employers contribute 3% to their accounts • Employees contribute nothing • After one year’s work, they accumulate 36% of one monthly wage in their account • They can withdraw these funds if they have contributed for 6 months

26. Problems with the Scheme • Only 31% of the unemployed had an open-ended contract in their previous job • 60% of the unemployed worked less than a year prior to becoming unemployed • A third of the unemployed earned the minimum wage or less, another 47% earned 1-2 minimum wages • Most of the unemployed will not be covered for the duration of their unemployment