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Title: The Labor Divide
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The Labour Divide
1st EDITION
Sam Vaknin, Ph.D.
Editing and Design:
Lidija Rangelovska
Lidija Rangelovska
A Narcissus Publications Imprint, Skopje 2002
First published by United Press International – UPI
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Table of Contents
I. Battling Unemployment
II. The Labour Divide - I. Employment and Unemployment
III. The Labour Divide - II. Migration and Brain Drain
IV. The Labour Divide - III. Entrepreneurship and
Workaholism
V. The Labour Divide - IV. The Unions after Communism
VI. The Labour Divide - V. Employee Benefits and Ownership
VII. The Labour Divide - VI. The Future of Work
VIII. Immigrants and the Fallacy of Labour Scarcity
Battling Unemployment
A First Draft Report Presented to the
Minister of Labour and Social Policy
By: Dr. Sam Vaknin
Economic Advisor to the
Government of the Republic of Macedonia
Skopje, Republic of Macedonia
September, 1999
Contents
I. Recommendations
II. The Facts
III. Bibliography
IV. Appendix – The Keynesian view of Unemployment,
Stabilization Theory and Full Employment Budgeting
V. Appendix – Unemployment throughout the World
(Excerpts from an academic article by R.di Tella and
R. MacCullouch, 4/1999)
The author wishes to thank Mr. Rafael Di Tella from Harvard
University (Harvard Business School) for his assistance in
sharing with the author the article he has co-authored with
Mr. R. MacCullouch of Bonn University.
The author wishes to thank Ms. Lidija Rangelovska for
sharing her Country Assessment Survey results for Macedonia
with the author. Her survey was prepared in collaboration
with the Harvard Institute of International Development
(HIID).
I. Recommendations
Get the Real Picture
No one in Macedonia knows the real picture. How many are
employed and not reported or registered? How many are
registered as unemployed but really have a job? How many
are part time workers – as opposed to full time workers?
How many are officially employed (de jure) – but de facto
unemployed or severely underemployed? How many are on
“indefinite” vacations, on leave without pay, etc.?
The Statistics Bureau must be instructed to make the
gathering and analysis of data regarding the unemployed
(through household surveys and census, if necessary) – a
TOP PRIORITY.
A limited amnesty should be declared by the state on
violations of worker registration by employers. All
employers should be given 30 days to register all their
unregistered and unreported workers – without any penalty,
retroactive or prospective (amnesty). Afterwards, labour
inspectors should embark on sampling raids. Employers
caught violating the labour laws should be heavily
penalized. In severe cases, closures should be enforced
against the workplace.
All the unemployed must register with the Employment Bureau
once a month, whether they are receiving benefits, or not.
Non-compliance will automatically trigger the loss of the
status of “unemployed”. If a person did not register
without good cause, he would have the right to re-register,
but his “unemployment tenure” will re-commence from month 1
with the new registration.
I recommend instituting a households’ survey in addition to
a claimant count. Labour force surveys should be conducted
at regular intervals – regarding the structure of the
workforce, its geographical distribution, the pay
structure, employment time probabilities.
The statistics Bureau should propose and the government
should adopt a Standard National Job Classification.
The Unemployment Benefits
Unemployment benefits – if excessive and wrongly applied –
are self -perpetuating because they provide a strong
disincentive to work.
Unemployment benefits should be means tested. There is no
reason to pay unemployment benefits to the children of a
multi-millionaire. Unemployed with assets (especially
liquid assets) should not receive benefits, even if they
are otherwise eligible. The benefits should scale down in
accordance with wealth and income.
Unemployment benefits should always be limited in time,
should decrease gradually and should be withheld from
certain segments of the population, such as school
dropouts, those who never held a job, (in some countries)
women after childrearing.
Eligibility to unemployment benefits should be confined to
those released from work immediately prior to the receipt
of the benefits, who are available to work by registering
in an employment bureau, who are actively seeking
employment and who pass a means test. Benefits should be
withheld from people who resigned voluntarily or discharged
due to misconduct or criminal behaviour. In the USA,
unemployment compensation is not available to farm workers,
domestic servants, the briefly employed, government workers
and the self- employed.
Unemployment benefits should not exceed short-term sickness
benefits (as is the case in Canada, Denmark and the
Netherlands). Optimally, they should be lower (as is the
case in Greece, Germany and Hungary). Alternatively, even
if sickness benefits are earnings-related, unemployment
benefits can be flat (as is the case in Bulgaria and
Italy). In Australia and New Zealand, both sickness
benefits and unemployment benefits are means tested. It is
recommended to reduce the replacement rate of unemployment
benefits to 40% of net average monthly wages in the first 6
months of benefits and to 30% of net average monthly wages
thereafter in the next 6 months.
Unemployment benefits should be limited in time. In
Bulgaria, they are limited to 13 weeks, in Israel, Hungary,
Italy and the Netherlands to 6 months and in France,
Germany, Luxemburg and the United Kingdom – 12 months. Only
in Belgium are unemployment benefits not limited in their
duration. In most of these, countries, though, social
welfare payments replace unemployment benefits following
the prescribed period of time – but they are usually lower
than the unemployment benefits and serve as a disincentive
to remain unemployed rather than employed. It is
recommended to limit the duration of unemployment benefits
to 12 months.
No health insurance should be paid for those unemployed for
more than 6 months.
No unemployment benefits should be paid to a person who
refuses work offered to him or her on any grounds, except
on medical grounds.
I recommend a few pilot projects with the aim of
implementing them nation-wide, should they prove
successful:
A pilot project should be attempted to provide lump sum
block grants to municipalities and to allow them to
determine eligibility, to run their own employment-
enhancement programs and to establish job training and
child care assistance. An assessment of the success or
failure of this approach in a limited number of
municipalities can be done after one year of operation.
The unemployed worker, who participates in the second pilot
project, should be provided with a choice. He could either
receive a lump sum or be eligible for a longer period of
unemployment benefits. Alternatively, he can be provided
with a choice to either receive a larger lump sum or to
receive regular unemployment benefits. In other words: he
will be allowed to convert all or part of his unemployment
benefits to a lump sum. The lump sum should represent no
more than 9 months of unemployment benefits reduced to
their net present value (NPV).
The third pilot project involves the formation of private
unemployment insurance plans to supplement or even replace
the insurance (compensation, benefits) offered by the
Employment Fund. In many countries, private unemployment
insurance is lumped together with disability and life
insurance – all offered by the private sector within one
insurance policy.
The fourth and last pilot project involves the formation of
“Voucher Communities”. These are communities of unemployed
workers organized in each municipality. The unemployed
exchange goods and services among themselves. They use a
form of “internal money” – a voucher bearing a money value.
Thus, an unemployed electrician can offer his services to
an unemployed teacher who, in return will give the
electrician’s children private lessons. They will pay each
other with voucher money. The unemployed will be allowed to
use voucher money to pay for certain public goods and
services (such as health and education). Voucher money will
not be redeemed or converted to real money – so it has no
inflationary or fiscal effects, though it does increase the
purchasing power of the unemployed.
Encouraging Employers to Hire the Unemployed
The principle governing any incentive scheme intended to
encourage employers to hire hitherto unemployed workers
must be that the employer will get increasing participation
in the wage costs of the newly hired formerly unemployed
workers – more with every year the person remains employed.
Thus, a graduated incentive scale has to be part of any law
and incentive plan. Example: employers will get increasing
participation in wage costs – more with every 6 months the
person has been unemployed by them.
Additionally, employers must undertake to employ the worker
a number of months equal to the number of months they
received benefits for the worker and with the same salary.
It would be even better if the incentives to the employer
were to be paid for every SECOND month of employment. Thus,
the employer would have an incentive to continue to employ
the new worker.
Employers will receive benefits for a new worker only if he
was registered with an unemployment office for 6
consecutive months preceding his new employment.
I recommend linking the size of investment incentives
(including tax holidays) to the potential increase in
employment deriving from the investment project.
Encouraging Labour Mobility
Workers must be encouraged to respond promptly and
positively to employment signals, even if it means
relocating. We recommend obliging a worker to accept any
job offered to him in a geographical radius of 100 km from
his place of residence. Rejection of such work offered (“it
is too far”) should result in a loss of the “unemployed”
status and any benefits attaching thereof. On the other
hand, the Employment Bureau should offer financial and
logistical assistance in relocation and incentives to
relocate to areas of high labour demand. The needs of the
unemployed worker’s family should also be considered and
catered to (kindergarten or school for his children, work
for his wife and so on).
Fixed term labour contracts with a lower cost of dismissal
and a simplified procedure for firing workers must be
allowed (see details below).
I recommend altering the Labour Relations Law to allow more
flexible hiring and firing procedures. Currently, to
dismiss a worker, the employee has to show that it has
restricted hiring, applied workforce attrition and reduced
overall overtime prior to dismissing the worker. The latter
has recourse to the courts against the former. This
recourse should be eliminated and replaced with
conciliation, mediation, or arbitration (see below for
details).
Reforms in the Minimum Wage
The minimum wage is an obstacle to the formation of new
workplaces (see analysis in the next chapter). It needs to
be reformed.
I propose a scaled minimum wage, age-related and means
tested and also connected to skills.
In other words, the minimum wage should vary according to
age, other (non-wage) income and skills.
Administrative Measures: Early Retirement
Macedonia must allow the employer to encourage the early
retirement of workers which otherwise might be rendered
technologically redundant. Early retirement is an efficient
mechanism to deal with under-employment and hidden
unemployment.
Romania ameliorated its unemployment problem largely
through early retirement.
Offering a severance package, which includes a handsome up-
front payment combined with benefits from the Employment
Fund, can encourage early retirement. A special Early
Retirement Fund can be created by setting aside receipts
from the privatization of state assets and from dividends
received by the state from its various shareholdings, to
provide excess severance fees in case of early retirement.
Administrative Measures: Reduction of Working Hours
Another classic administrative measure (lately implemented
in France) is a reduction in the standard working week (in
the number of working hours). For reasons analyzed in the
next chapter, we recommend NOT to implement such a move,
despite its obvious (though false) allure.
Administrative Measures: Public Works
All the medically capable unemployed should be compulsorily
engaged in public works for a salary equal to their
unemployment benefits (Workfare). A refusal by the
unemployed person to be engaged in public works should
result in the revocation of his “unemployed” status and of
all the benefits attaching thereto.
Generally, we would not have recommended public works.
From the Encyclopedia Britannica:
“The weakness in the proposal to use disguised unemployment
for the construction of social overhead capital projects
arises from inadequate consideration of the problem of
providing necessary subsistence funds to maintain the
workers during the long waiting period before the projects
yield consumable output. This can be managed somehow for
small-scale local community projects when workers are
maintained in situ by their relatives – but not when
workers move away. The only way to raise subsistence funds
is to encourage voluntary savings and expansion of
marketable surplus of food purchased with these savings.”
But public works financed by grants or soft loans can serve
as an interim “unemployment sink” – a buffer against wild
upswings in unemployment.
The situation in Macedonia is so extreme, that it is
comparable only to the Great Depression in the USA.
In the USA, in 1932, the Civilian Conservation Corps (CCC)
was established to tackle nature conservation work for the
young and unmarried men. They planted trees, erected flood
barriers, put out forest fires and constructed forest roads
and trails. They lived in work camps under a semi-military
regime. They were provided with food rations and a modest
monthly cash allowance, medical care and other necessities.
The CCC employed 500,000 people at its peak – and 3 million
people throughout its existence.
In any case, there is always the danger that public works
will simply displace existing employment. Labour union and
local municipality endorsements should, therefore, be
strictly observed.
Administrative Measures: Public Education and Dissemination
of Information – The Functioning of the Employment Bureau
The dissemination of information regarding employment
practices, opportunities, market requirements, etc. should
be a prime component of the activity of the Employment
Bureau. It must transform itself from a mere registry of
humans to an active exchange of labour. This can be done
through computerized employment exchanges and
intermediation.
To change the image of the Employment Bureaus from places
where the unemployed merely registers and receive benefits
to a labour exchange can be done by publishing examples of
successful job placements.
I recommend to prominently display and disseminate
information regarding the rights of the unemployed, their
obligations and services available to them and to publish
weekly or daily employment bulletins.
To organize seminars to the unemployed and to employers in
which the rights of the unemployed, their obligations and
the services offered to them and to their potential
employers will be described. This can be combined with
employment fairs. Separately, the unemployed should be
taught in these seminars how to find a job, prepare a
curriculum vita (biography), entrepreneurial skills,
preparation of business plans, marketing plans, feasibility
studies, credit applications and interview skills.
The Employment Bureaus in collaboration with the local
authorities should organize job clubs, labour exchanges and
employment fairs – places where employers can meet
potential employees, currently unemployed.
I recommend to oblige the mass media by law to dedicate at
least an hour weekly (could be broken to as many as 4
segments of 15 minutes each) to unemployment: disseminate
information, organize a televised labour exchange, a
televised entertainment show (where employers will offer a
job to a winner) and so on.
I recommend to link by a Wide Area Network (WAN) or
Intranet with firewalls the National Employment Bureau, the
Health Fund, the Pension and Disability Insurance Fund and
the Social Security Office. To cross and compare
information from all these bureaus on a real time basis (to
specifically cater to the needs of an unemployed person)
and on a periodical basis for supervision and control
purposes.
The National Employment Bureau should maintain a regular
presence in employment fairs abroad. Many fairs are global
and work can be obtained in them for Macedonian workers
(especially the more skilled).
A National employment Contract
A “National Employment Contract” should be signed between
the government, the trade unions, the employers (Chamber of
Commerce) and the Central Bank. All parties will have to
concede some things.
The Employers will guarantee the formation of new work
places against a freeze on employee compensation, a
separate treatment of part time labour (exclusion from
collective bargaining), flexibility on minimum wages and
with regards to job security, hiring and firing procedures,
social and unemployment benefits, indexation of wages and
benefits, the right to strike and the level of salaries.
The employers will obligate themselves to fixed
quantitative targets over a number of years against the
receipt of the unemployment benefits of the newly hired (or
another form of subsidy or tax incentive) and/or a discount
in social contributions.
The National Employment Contract should aim to constrain
inflation by limiting wage gains to productivity gains (for
instance, through dividends on the shareholdings of the
workers or through stock options schemes to the workers).
In return, the trade unions will be granted effective
control of the shop floor. This is the neo-corporatist
approach.
It means that the tripartite social contract will increase
employment by moderating wage demands but the unions will
control policies regarding unemployment insurance,
employment protection, early retirement, working hours, old
age pensioners, health insurance, housing, taxation, public
sector employment, vocational training, regional aid and
subsidies to declining and infant industries.
In Sweden and Germany there is co-determination. Workers
have a quasi-constitutional shop floor representation even
in non-wage related matters (such as the work
organization).
Many countries instituted an “Incomes Policy” intended to
ensure that employers, pressurized by unions, do not raise
wages and prices. In Sweden, for instance, both labour and
management organizations are responsible to maintain price
stability. The government can intervene in the negotiations
and it can always wield the whip of a wage freeze, or wage
AND price controls. In Holland the courts can set wages.
Wages and unemployment benefits are perceived as
complementary economic stabilizers (contra the business
cycle).
Another possibility is a Guaranteed Wage Plan – Employers
assure minimum annual employment or minimum annual wages or
both to those employees who have been with the firm for a
minimum of time.
Firms and trade unions must forego the seniority treatment
(firing only the newly hired – LIFO, last in first out).
The firm should be given a free hand in hiring and firing
its employees regardless of tenure.
Labour Disputes Settlement
The future collective agreements should all be subordinated
to the National Employment Contract. All these agreements
should include a compulsory dispute settlement through
mediation and arbitration. All labour contracts must
include clear, compulsory and final grievance procedures.
Possibilities include conciliation (a third party bring
management and labour together to try and solve the
problems on their own), mediation (a third party makes
nonbonding suggestions to the parties) and arbitration (a
third party makes final, binding decisions), or Peer Review
Panels – where the management and the employees together
rule on grievances.
I recommend allowing out of court settlement of disputes
arising from the dismissal of employees through
arbitration, an employees' council, trustees or an
employer-employee board.
Unconventional Modes of Work
Work used to be a simple affair of 7 to 3. It is no longer
the case.
In Denmark, the worker can take a special leave. He
receives 80% of the maximum unemployment benefits plus no
interruption in social security providing he uses the time
for job training, a sabbatical or further education, or a
parental leave. This can be extended to taking care of old
people (old parents or other relatives) or the terminally
ill – as is the case in Belgium (though only for up to 2
months). It makes economic sense, because their activities
replace social outlays.
In Britain, part time workers receive the same benefits in
case of layoffs and wrongful dismissals and in Holland, the
pension funds grant pensions to part time workers.
Special treatment should be granted by law and in the
collective agreements to night, shift and weekend work (for
instance, no payment of social benefits).
All modes of part-time, flextime, from home, seasonal,
casual and job sharing work should be encouraged. For
example: two people sharing the same job should be allowed
to choose to be treated, for tax purposes and for the
purposes of unemployment benefits, either as one person or
as two persons and so should shift workers. In Bulgaria, a
national part time employment program encouraged employers
to hire the unemployed on a short term, part time basis
(like our Mladinska Zadruga).
Macroeconomic Policies
The macroeconomic policies of Macedonia are severely
constrained by its international obligations to the IMF and
the World Bank. Generally, a country can ease interest
rates, or provide a fiscal boost to the economy by slashing
taxes or by deficit spending.
Counter-cyclical fiscal policies are lagging and as a
result they tend to exacerbate the trend. Fiscal boosts
tend to coincide with booms and fiscal contraction with
recessions.
In view of the budget constraints (more than 97% of the
budget is “locked in”), it is not practical to expect any
employment boost either from the monetary policy or from
the fiscal policies of the state in Macedonia.
What I do recommend is to introduce a “Full Employment
Budget” (see details in Appendix number I). A full
employment budget adjusts the budget deficit or surplus in
relation to effects of deviations from full or normal
unemployment. Thus, a simple balanced budget could be
actually contractionary. A simple deficit may, actually, be
a surplus on a full employment basis and a government can
be contractionary despite positive borrowing.
Apprenticeship, Training, Retraining and Re-qualification
The law should be amended to allow for apprenticeship and
training with training sub-minimum wages. Mandatory
training or apprenticeship is a beneficial rigidity because
it encourages skill gaining. Germany is an excellent
example of the benefits of a well-developed apprenticeship
program.
Most of the unemployed can be retrained, regardless of age
and level of education. This surprising result has emerged
from many studies.
The massive retraining and re-qualification programs needed
to combat unemployment in Macedonia can be undertaken in
collaboration with the private sector. The government will
train, re-train, or re-qualify the unemployed worker – and
the private sector firms will undertake to employ the
retrained worker for a minimum period of time following the
completion of his or her training or retraining. Actually,
the government should be the educational sub-contractor of
the business sector, a catalyst of skill acquisition for
the under-capitalized private sector. Small business
employers should have the priority in this scheme.
There should be separate retraining and re-qualification
programs according to the educational levels of the
populations of the trainees and to the aims of the
programs. Thus, vocational training should be separated
from teaching basic literacy and numeracy skills.
Additionally, entrepreneurship skills should be developed
in small business skill training programs and in programs
designed to enhance the management skills of existing
entrepreneurs.
All retraining and re-qualification programs should double
as advisory services. . The instructors / guides /
lecturers should be obliged to provide legal, marketing,
financial, sales-related or other consulting. Student who
will volunteer to teach basic skills will be eligible to
receive university credits and scholarships.
Entrepreneurship and Small Businesses
Small businesses are the engine of growth and job creation
in all modern economies. In the long run, the formation of
small businesses is Macedonia’s only hope. The government
should encourage the provision of micro-credits and
facilities to set up small and home-based businesses by the
banking system. In the absence of reaction from or
collaboration with the banking system, the state itself
should step in to provide these funds and facilities
(physical facilities and services – such as business
incubators).
Thus, the state should encourage small businesses through
microcredits, incubators, tax credits, and preference to
small businesses in government procurement.
II. The Facts
Labour Mobility, Unemployment Benefits and Minimum Wages
We are all under the spell of magic words such as
“mobility”, “globalization” and “flextime”. It seems as
though we move around more frequently, that we change jobs
more often and that our jobs are less secure. The facts,
though, are different.
The world is less globalized today than it was at the
beginning of the century. Job tenure has not declined (in
the first 8 years of every job) and labour mobility did not
increase despite foreign competition, technological change
and labour market deregulation. The latter led to an
enhanced flexibility of firms and of hiring and firing
practices (temporary or part time workers) but this is
because many workers actually prefer casual work with
temporary contracts to a permanent position.
Granted, people have been and are moving from failing firms
and declining industries to successful ones and booming
sectors. But they are still reluctant to change residence,
let alone emigrate. Thus, jobs remain equally stable in
deregulated as in regulated labour markets.
Yet, this phobia of losing one’s job (arising from the
aforementioned erroneous beliefs) serves to increase both
the efficiency and productivity of workers and to moderate
their wage claims.
It is safe to assume that collective bargaining led to
increased wages and, thus, to less hiring and less flexible
labour markets. It is therefore surprising to note that
despite the declining share of unionized labour in two
thirds of the OECD countries – unemployment remained
stubbornly high. But a closer look reveals why. Both France
and the Netherlands (where unionized labour declined from
35% of the actually employed to 26%), for instance,
extended the coverage of collective agreements to non-
unionized labour. It is only where both union membership
and coverage by collective agreements were both reduced
(USA, UK, New Zealand, Australia) that employment reacted
favourably. Thus, at the one extreme we find the USA and
Canada where agreements are signed at the firm or even
individual plant level. At the other pole we have
Scandinavia where a single national agreement prevails. All
the rest are hybrid cases. Britain, New Zealand and Sweden
decentralized their collective bargaining processes while
Norway and Portugal centralized it. The evidence produced
by hybrid cases is not conclusive. Decentralized bargaining
clearly reduced wage pressures but centralized bargaining
also moderated wage demands (union leaders tended to
consider the welfare of the whole workforce. Still, it
seems that it is much preferable to choose one extreme or
the other rather than opt for hybrid bargaining. The worst
results, for instance, were obtained with national
bargaining for specific industries. Hybrid Europe saw its
unemployment soar from 3 to 11% in the last 25 years. Pure
system USA maintained its low rate of 4-5% during the same
quarter century. These opposing moves cannot be attributed
to monetary or fiscal policies. This is because all
economic policies are geared towards increasing employment.
Budget cuts, for instance, depress demand and job formation
in the short term but, by lowering real interest rates,
they encourage investment and job formation in the longer
term.
The cycle is:
Employment protection laws make it hard to fire workers and
hard for fired workers to find new jobs. The longer one is
unemployed, the lesser the chances of employment. Skills
rust and the long term unemployed become the unemployable.
Gradually, desperation sets in and the unemployed stop
looking for a job. Their absence is conspicuous in that
they do not restrain the wages paid to the employed. They
have become part of the structural unemployment.
Blanchard and Wolfers studied 20 countries between the
years 1960-96. They applied 8 market rigidities to their
subjects. The average unemployment increased by 7.2% in
this period. But in countries with strict employment
protection unemployment rose by double the amount in
countries with lax labour legislation. The country with the
most generous unemployment benefits saw its unemployment
rate grow by five times the rate of the stingiest country.
And in countries with highly coordinated wage bargaining,
unemployment has grown by four times its growth in
countries with decentralized bargaining.
It is difficult to isolate these parameters from the
general decline in productivity, the increase in real
interest rates and technological change and restructuring.
Still, the results are fairly unequivocal. Other research
(the 1994 OECD one year study, the DiTella-MacCullouch
study) seems to support these discoveries:
That flexibility is a good thing. It encourages employment,
it leads to higher output and to a higher GDP per capita.
The reason a transition from a rigid to a flexible labour
market does not yield immediate results is that it
increases the participation in the labour force. The rate
of unemployment is, thus, affected only later, it lags the
changes. But flexibility leads to lower rates of unfilled
vacancies and to a lower persistence of unemployment over
time.
Unemployment in Europe is structural (in Germany it has
been estimated to be as high as 8.9%). It is the cumulative
result of decades of centralized wage bargaining, strict
job protection laws, and over-generous employment benefits.
The IMF puts structural unemployment in Europe at 9%. This
is while the USA’s structural rate is 5-6% and the UK
reduced its own from 9% to 6%. The remedies, though well
known, are politically not palatable: flexible wages,
highly mobile labour, flexible fiscal policy.
Deregulation makes labour markets more flexible because it
forces the worker to accept almost any job. Cutting or
limiting jobless benefits has largely the same effect.
Employers feel more prone to hire people if they can
negotiate their wages with them directly and on a case-by-
case basis and if they can fire them at will. Hence the
debilitating effect of minimum wages and other wage
controls as well as of job protection laws.
But all these steps must be implemented together because of
their synergy. Research has demonstrated the impotence and
inefficacy of half hearted half measures.
Some hesitant steps have been adopted by the governments of
Germany and France (which trimmed jobless benefits), by
Italy (which stopped linking benefits to inflation), by
Belgium, Spain and France, which reduced the minimum wage
payable to young people. Spain established two classes of
workers with an increased bargaining power granted to those
with permanent employment. Yet, some measures yielded quite
unexpected and unwanted results. France legislated a
reduced working week. Other countries imposed a freeze on
hiring with the aim of attrition of the workforce through
retirement. Yet, these last two remedies led to an increase
in the bargaining power of the remaining workers and to
real wage increases.
The only clear causal relationship is between unemployment
benefits and the level of employment. The lower the
unemployment benefits, the more people seek work and wages
decrease. As a result, firms hire more workers. But, firms
hire even more when dismissing workers is made easier and
cheaper.
Paradoxically, the easier it is to fire workers, the more
workers firms are willing to take on and the more secure
workers feel knowing that their chances of being hired are
better. They look harder for work and find it, reducing the
level of unemployment and the costs to the state of jobless
benefits. Having to spend less on unemployment benefits,
the government can either cut taxes of improve the
allocation of its resources. In both cases the economy
improves and provides an added incentive to work. This is
because, in a vigorous growth economy, the value of an
extra worker is higher than the combined costs of his
hiring and firing. This is especially true since the
reservoir of the unemployed is comprised of the unskilled,
the young and women, whose remuneration is closer to the
minimum wage. In the USA the minimum wage is 35% of the
average wage (in France, it is 60%, in Britain it is 45%
and in the Netherlands it is declining relative to the
median salary). It is a fact that when wages are downward
flexible – more lowly skilled jobs are created. A 1% rise
in the minimum wage reduces the probability of finding a
job by 2-2.5%.
There is a debate raging between the proponents of minimum
wages (they reduce poverty and increase the equality of
wealth distribution) and their opponents (they destroy
jobs). The OECD stated clearly that wage regulation
couldn’t deal with poverty. The reason is that, as opposed
to common opinion, few low paid workers live in low-income
households and few low-income households have low paid
workers. Thus, the benefits of the minimum wage, such as
they are, largely bypass the poor.
Again, it is important to realize that unemployment is not
a universal phenomenon. It is concentrated among the young
and the unskilled. 11% of all people under the age of 25 in
the USA are unemployed, almost three times the national
average. A shocking 28% of those under the age of 25 are
unemployed in France. The OECD says that a 10% rise in the
minimum wage reduces teenage employment by 2-4% in both the
high and low minimum wage countries.
In view of these facts, many countries (USA, UK, France)
introduce “training wages” – actually, minimum wage
exemptions for the young. But the minimum wage is still a
high percentage of mean youth earnings (53% in the USA and
72% in France) and thus has a prohibitive effect on youth
employment.
There is no disputing the facts that minimum wages compress
the earnings distribution and reduce wage disparities
between ages and sexes but they have no effect on
inequality and the reduction of poverty among households.
In US households with less than half the median household
income only 33% of the adults have a low paid job (The
equivalent figure in the Netherlands is 13% and in the UK –
5%). In most poor households no one is employed at all. On
the other hand, many low earners have high paid partners.
In the USA only 33% of earners of less than two thirds of
the median wage live in households whose income is less
than 50% of the national median household income. In the UK
the figure is 10% and in Ireland – 3%. In each 5-year
period only 25% of low paid Americans are in a poor family
at some point (the figure is 10% in the UK).
These statistics show that minimum wages hurt poor families
with teenagers (by making teenage employment prohibitive)
while benefiting mainly the middle class.
Unemployment and Inflation
Another common misperception is that there is some trade
off between unemployment and inflation. Both Friedman and
Phelps attacked this notion. Unemployment seems to have a
“natural” (equilibrium or homeostatic) rate, which is
determined by the structure of the labour market. The
natural rate of unemployment is consistent with stable
inflation (NAIRU – Non Accelerating Inflation Rate of
Unemployment).
Making more people employable at the prevailing level of
wages can lower NAIRU. This should lead to a big drop in
unemployment together with a tiny increase in permanent
inflation. Phelps actually sought to lower NAIRU and raise
the incomes of the working poor. Stiglitz calculated that
the changing demographics of the labour force and the3
competition in markets for goods and jobs reduced NAIRU by
1.5% in the USA. R. Gordon, D. Staiger and M. Watson
support these findings.
It emerges, therefore, that the gap between the estimated
NAIRU and the actual rate of unemployment is a good
predictor of inflation.
The Rhineland Model the Poldermodel and Other European
Ideas
The Anglo-Saxon variety of capitalism is intended to
maximize value for shareholders (often at the expense of
all others, including the workers).
The Rhineland model is capitalism with a human face. It
calls for an economy of consultation among stakeholders
(shareholders, management, workers, government, banks,
other creditors, suppliers, etc.)
In the Netherlands there is a Social and Economic Council.
Its role is advisory and it is semi-corporatist. Another
institution, the Labour Foundation is a social partnership
between employees and employers.
But the Netherlands succeeded in reducing its unemployment
rate from 17% to less than 5% by ignoring both models and
inventing the “Poldermodel”, a Third Way. Wim Duisenberg,
the Dutch Banker (currently Governor of the European
Central Bank), attributed this success to four elements:
Improving state finances
Pruning social security and other benefits and transfers
Flexible labour markets
Stable exchange rate.
The Dutch miracle started in 1982 with the Wassenaar
Agreement in which employers’ organizations and trade
unions agreed on wage moderation and job creation, mainly
through decentralization of wage bargaining. The government
contributed tax cuts (which served to replace forgone wage
increases). This fiscal stimulus prevented a drop in demand
as a result of wage moderation. Additionally, restrictions
were placed on social security payments and the minimum
wage. For instance, increases in wages were no longer
matched by corresponding increases in minimum social
benefits. Working hours, hiring, firing and collective
bargaining were all opened up to labour market forces. The
strict regulation of small and medium size businesses
(which drove up labour costs) was relaxed. Generous social
security and unemployment benefits (a disincentive to find
work) were scaled back. The Netherlands did not shy from
initiating public works projects, though on a much smaller
scale than France, for instance. The latter financed these
projects by raising taxes and by increasing its budget
deficit. The result could well be a reduction in employment
in the long run (the effect of taxation). In the absence of
monetary instruments such as devaluation (due to the EMU),
the only remedy seems to be labour market flexibility.
Such flexibility must include a substantial adjustment in
sickness benefits, vacation periods, maternal leave and
unemployment benefits.
The long term (more than 12 months) unemployment in Europe
constitutes 40% of the total unemployment. About HALF of
the entire workforce under the age of 24 is unemployed in
Spain. It is about 28% in France and in Italy. Germany,
Austria and Denmark escaped this fate only by instituting
compulsory apprenticeship. But the young become the kernel
of long-term unemployment. This is because a tug of war, a
basic conflict of interests exists between the “haves” and
“have-nots”. The employed wish to defend their monopoly and
they form labour cartels. This is especially true in
dirigiste Europe.
While in the USA, 85% of all service jobs created between
1990-5 paid more than the average salary – this was not the
case in Europe. Add to this the immobility of labour in
Europe and a stable geographical distribution of
unemployment emerges, not ameliorated by labour mobility.
The Dutch model sought to battle all these rigidities:
The Dutch reduced social security contributions from 20%
(1989) to 7.9% and they halved the income tax rate to 7%
(1994).
They allowed part time workers to be paid less than full
timers, doing the same job.
They abandoned sectoral central bargaining in favour of
national bargaining – but more decentralized.
They cut sickness benefits, unemployment insurance
(benefits) and disability insurance payments (by 10% in
1991 alone – from 80% to 70%).
They made it harder to qualify for unemployment (in 1995 no
benefits were paid to those who chose to remain
unemployed).
The burden of supporting the sick was shifted to the
employer / firm. In 1996, the employer was responsible to
pay the first year of sickness benefits.
Even the Dutch model is not a success. More than 13% of the
population is receiving disability benefits. Only 62% of
the economically active population is in the workforce (the
rest dropped out of it).
But compare its experience to France, for instance.
The LOI ROBIEN prescribes that companies should be spared
social security obligations for 7 years if they agree to
put workers on part time work instead of laying them off.
Firms abused the law and restructured themselves at the
government’s expense.
The next initiative was to reduce the working week to 35
hours. This was based on the “Lump of Labour Fallacy” – the
idea that there is a fixed quantity of work and that
reducing the working week from 39 to 35 hours will create
more jobs. In reality, though, labour demand changes only
in response to changes in productivity and in the workings
of the labour market itself (rigidities). A cut in the
working week reduces productivity and destroys jobs rather
than foster job formation.
In Spain, a permanent employee fired is entitled to receive
up to 45 days’ pay multiplied by his or her tenure in
years. The result is that firms are afraid to hire or fire
workers. The government – faced with more than 22%
unemployment – permitted part time contracts with less job
protection. Today, 30% of all employed Spaniards work this
way. Yet, this led to the creation of a two-tiered
workplace where it is easier to fire the part-timer (even
if he is valuable) rather than the permanent (and better
earning) worker. Additionally, wages are thus disconnected
from productivity.
MACEDONIA
Summary
As privatization progressed (however flawed in concept and
in implementation), unemployment rose. It was the result of
redundancies, bankruptcies and restructuring of the new
private enterprises. By 1998, more than 92,000 workers were
involved in direct privatization. There were more than
210,000 workers involved in all enterprises privatized.
The unemployment rate shot up from 23.5% in 1990 to more
than 41% (foreign estimates) today (or 34% officially).
While officially the labour-force stands at c. 800,000
people, in reality it comprises only 600,000 (down from
680,000 in 1990). The number of central government
employees has remained fairly stable at c. 17,000. About
2,400 are employed in cooperatives, another 22,600 in the
pure private sector and c. 92,000 in firms with mixed
ownership.
About 4000 are in government subsidized retraining programs
at any given moment. Others are retrained within the Labour
Redeployment program run by the Agency of Privatization.
Unemployment compensation recipients rose from 5,400 in
1990 to more than 50,000 in 1997.
Mandatory employer payroll tax contribution is 20%
(pension) and the employee pays 8% to the Health Fund.
Numerous laws and legal instruments govern employment and
unemployment in Macedonia. Among them:
The Law on Labour Relations, the Law on Employment, the
Collective Bargaining Agreement, the Law on Pension and
Disability Insurance, the Law on Health Protection at Work,
the Law on Labour Inspection, the Law on Industrial Action
and the July 1997 Law on Employment and Insurance in the
case of Unemployment (now largely defunct).
The most important law by far is the Law on Labour
Relations. It regulates the terms and manner of entering
employment, the rights of employees, job positions,
salaries and other compensation. Unfortunately, it is an
extremely general and vague law. The collective agreements,
the second most important legal instruments, are as general
and, in any case, they pertain mainly if not solely to
their signatories.
The collective agreements usually provide for an
“employment trial period”. But the law itself equates the
rights of the temporarily employed to those of the
permanently employed.
The 1997 law allowed the hiring of workers without the
assistance or approval of the Employment Bureau. It
demanded that the unemployed should actively seek gainful
employment to qualify to receive unemployment benefits. It
reduced both the amount and the duration of unemployment
benefits payable to certain groups of unemployed workers.
It introduced payments of pension contributions and health
care fund contributions of registered unemployed workers
who are not covered elsewhere (for example, by their
parents, or their spouse).
The law eliminated special one-time payments to the
unemployed who could claim a right to a pension equal to
40% of the average monthly net wages.
It mandated the monthly registration of recipients of
benefits and the bi-annual registration of all other
unemployed.
Under this law, workers with 15 years of participation in
the workforce and contributions to the fund will receive
unemployment benefits for 6 months. Those with more than 25
years will receive unemployment benefits indefinitely.
Additionally, employers were allowed to use up to 18 months
of unpaid payroll taxes to subsidize the wages of
previously unemployed workers hired by them. This provision
has been eliminated.
Analysis
There are a few statistical methods used to gauge
employment-related data. The easiest, most immediate but
least reliable way is to count the number of people
registered with the Employment Bureau (“claimants”). A
claimant count tends to underestimate unemployment by up to
50% (!) because many people are so desperate that they do
not bother to register with the unemployment bureau.
The second method which is more demanding, resource
consuming and has a time lag – is also more rigorous and a
much better gauge of reality. It is the household survey.
Britain, for instance, estimates unemployment using BOTH
methods.
The Statistical Bureau in Macedonia defines and Employee as
someone who is employed at least one hour in the week prior
to being sampled, whether in a part time job or in a
permanent, full time one. People attending an
apprenticeship program or sentenced to correctional labour
are excluded (unlike in Germany, Austria or Denmark).
It follows that the unemployed are people seeking
employment. Anyone without a job, but previously employed
and recorded in an employment office is defined as an
“earlier employed person”. Applicants who held no job
before are “first time applicants”.
Self-employed workers are all people included in TRUD-15, a
quarterly report filed with the Pension and Disability
Fund. This report includes only those currently insured and
it, too, does not cover vocational students and
apprentices. It is, therefore, safe to assume that the
number of the self employed in Macedonia is larger than
reported.
If the index representing total employment in Macedonia in
1989 was 100.3 – it was 62 in 1997. The figure for women
was marginally higher.
Total employment in the economic sector went down by more
than 40% between 1989-97.
The strongest declines were in trade and in tourism and
catering. But severe drops were registered in mining and
industry, agriculture and fisheries, forestry (which was
already depressed in 1989). Only water treatment and
management and crafts and trades – actually increased. But
construction, transport and communications, and, to a
lesser extent, housing, utilities, landscaping, financial,
technical and business services also declined.
Total employment in the non-economic sector was almost
unaffected !!!
Even in sectors such as education, science, culture and
information and healthcare and social services, the effects
were minimal.
And in administration and politics there was actually an
INCREASE.
The total employed declined from c. 517,000 (1989) to less
than 320,000 in 1997.
The total in the economic sectors declined from 430,000 to
270,000.
The total in the non-economic sectors declined from c.
90,000 to 84,000.
The female population reacted more strongly to the trend.
Female employment declined from 133,000 in 1995 to less
than 122,000 in 1997.
Less than 73,000 women were employed in the economic sector
in 1997, compared to more than 84,000 in 1995. In the non-
economic sector, the figures are 49,000 and 49,000
respectively (in other words, employment in the non
economic sector remained stable while even as it declined
strongly in the economic sector).
To summarize:
In 1997, all employed people numbered c. 319,453 (of whom
121,666 were women).
In the economic sector: 235,206 (72359)
In companies with social ownership: 185522 (70,094), of
which 121,663 were in the economic sector (30,835 women).
In privately owned firms the figure is – 22, 593 (of whom
21,910 in the economic sector). Women accounted for 10,492
(10,252 in the economic sector) of this number.
2414 workers (629 women) worked in cooperatives (all part
of the economic sector).
Firms with mixed ownership employed 91,988 (31,854 women).
Of these employees, 88,799 (30,548) were in the economic
sector.
State owned firms, institutions and organs employed 16,936
workers (8,597 women). Of these only 420 were engaged in
economic activities (95 women).
The (monthly) demand for workers declined from 6,619 in
1989 to 1,907 in 1996. Concurrently, monthly layoffs
doubled from 1,408 to 2,805. First time applicants for
unemployment benefits peaked monthly at 3,847 in 1992 and
declined to 2,073 in 1996. This is a bad sign – it
indicates growing desperation among the long term (more
than 12 months) unemployed.
New hiring virtually collapsed from 1,506 monthly in 1989
to 972 in 1997. Yet, this grim picture has to be balanced
by mentioning that many people are unofficially employed
and not registered anywhere.
The total number of employment seekers (in parentheses –
the number of women) has gone up from 150,400 (78,075) in
1989 to c. 253,000 (115,000) in 1997. But this is
misleading because fully 200,000 people have dropped from
the workforce and have given up seeking employment.
First time applicants went up from 116,000 to 186,000 in
the same period.
In 1989 only 75,000 unskilled workers were jobless. In 1997
the number almost doubled to 133,000.
And while only 5,800 received unemployment compensation in
1989 – their numbers multiplied by 10 (!) and reached over
50,000 in 1997.
Due to improvements in education on the one hand and to
growing desperation on the other hand – almost no people
younger than 18 years were looking for jobs in 1997 (only
1,700) compared to 1989 (11,900).
To a large extent, the same is true for the 18-25 age
groups. 70,400 sought work in 1989 versus 60,100 in 1997.
But the pernicious and lasting effects of unemployment were
more than evident in the next age groups. In the age groups
25-40 the number of e4mployment seekers increased from
55,200 to 135,000 in the same period. The number of people
between the ages 40-50 seeking work quadrupled (!) from
10,500 to 39,500. The same goes for people over the age of
50 (from 5,500 to 21,500).
By far the largest group of employment seekers was people
with no previous work experience (128,400 in 1989 and
180,700 in 1997).
The situation was much better in all other groups of work
experience:
Less than 1 year experience – from 6,300 (1989) to 7,900
(1997)
1-2 years – 3,500 to 5,000
2-3 years – 2,500 to 3,600
3-5 years – 3,400 to 5,700
5-10 years – 5,300 to 13,200
10-20 years – 3,200 to 18,200
20-30 years – 800 to 11,700
The number of unemployed people with more than 30 years
experience went up – from 100 in 1989 to 3,100 in 1997.
The time structure of unemployment has also worsened.
In 1989 22,900 found employment within 6 month. In 1997 –
there were only 6,100.
Within 6-9 months – from 8,300 to 4,100
Within 9-12 months – from 8,000 to 5,000
Between 1-3 years – from 51,300 to 71,600
Between 3-5 years – from 28,500 to 49,500 (!!!)
Between 5-8 years – from 20,700 to 49,900 (!!!)
More than 8 years – from 13,800 to 71,400 (!!!!!!!)
In other words, most of the employment seekers have to wait
for years before they gain employment. About 30% of them
wait for more than 8 years. This is nothing short of
disastrous.
Unemployment is concentrated, therefore, among the
relatively young and without work experience. Additionally,
the skilled and highly skilled workers have lesser
difficulties in finding a job. Only 46,000 of them were
employment seekers in 1997 (compared to 26,000 in 1989).
The semi-skilled and those with elementary school are the
most vulnerable, with 132,800 employment seekers (versus
75,200 in 1989). Even those with secondary school training
fared badly, with 74,200 employment seekers (versus 49,300
in 1989).
The Workforce Survey
Macedonia has executed a workforce survey for the first
time in 1996.
In this survey the following definitions were used:
Economically Active
The combined numbers of the employed and the unemployed
Employed
People aged 15 or more who worked for a wage (in cash or in
kind) or had income during at least one hour during the
reference week
Or
Were temporarily absent from work with a formal job
assignment
Or
Were helping on the family property or enterprise without
wages
Self Employed
An employer who operates his or her own enterprise or
engages independently in a profession or trade or owns a
farm and employs other people
Or
An employer who works for a private or public employer
Or
Own account worker – a person who operates his or her own
enterprise or engages independently in a profession or
trade but does not employ other persons
Or
An unpaid family worker – a person who works without pay in
an enterprise, a trade, or on a farm owned by another
member of his or her household.
Unemployed
Was without work during the reference week and …
Was seeking work, i.e. has taken specific steps to find a
job and …
Was prepared to accept a job in the reference week or in
the following week
Changes in the Labour Force
The activity rate as the ratio of the labour force in the
total population above the age of 15 years
The employment rate as the ratio of the number of workers
employed to the total population above the age of 15 years
The unemployment rate as the ratio between the numbers of
the unemployed to the total labour force.
As of 4/97:
The total activity rate was 53.7% (66.5% for men and 41.2%
for women).
But this number hides major disparities in age groups. For
instance: the activity rate of the age groups 35-39 was as
high as 80.5% while for adolescents between the ages of 15-
19 it was only 22.7% and for people between the ages 55-59
it was 36.5%.
The total employment rate was 34.4% (44.6% men and 24.4%
women).
Again, there were great disparities between age groups. The
employment rate for ages 40-44 was 62.6% - while for ages
15-19 it was only 4.4% and for ages 20-24 it was a meager
18.2%.
The total unemployment rate was 36% (33% for men and 40.8%
- women).
More than 80.4% of the population aged 15-19 was
unemployed, but only 20.2% of 40-44 and only 12% of 55-59.
The total population above the age of 15 at the time of the
survey was 1,489,625 (men – 736,977 and women – 752,648).
The total labour force was 800,513 (men – 490,122, women –
310,392).
The total number of unemployed was 288,213 (men – 161,717,
women – 126,496).
The total number of employed people was 512,301 (men –
328,404, women – 183, 896).
Outside the labour force there were 689,112 people (men –
246,856, women – 442,256).
To summarize in terms of percentages:
Ages 15-19 – 11% of the population – 4.6% of the labour
force – 1.4% of the employed – 10.3% of the unemployed –
18.3% of those outside the work force.
Ages 20-24 – 10.3% - 12.4% - 5.5% - 24.8% - 7.9%
Ages 25-29 – 9.7% - 13.8% - 10% - 20.7% - 5%
Ages 30-34 – 9.5% - 13.8% - 13.4% - 14.3% - 4.5%
Ages 35-39 – 9.8% - 14.7% - 16.8% - 11% - 4.1%
Ages 40-44 – 9.7% - 14.1% - 17.6% - 7.9% - 4.5%
Ages 45-49 – 9% - 12% - 15.4% - 6% - 5.5%
Ages 50-54 – 6.9% - 7.3% - 9.8% - 2.8% - 6.4%
Ages 55-59 – 6.2% - 4.2% - 5.8% - 1.4% - 8.5%
Ages 60-64 – 6.7% - 1.8% - 2.6% - 0.4% - 12.4%
Ages 65-69 – 5.1% - 0.5% - 0.8% - 0% - 10.4%
Ages 70-80 – 0.4% - 0.3% - 0.3% - 0.2% - 0.6%
In the population above the age of 15 years as a whole,
there were c. 104,000 without education, 199,000 with
incomplete education, 474,000 with primary education,
151,000 with 3 years or less of secondary education, about
369,000 with 4 years of secondary education and c. 55,000
with a higher education. There were 81,100 with university
degrees, 2,400 masters, 1,200 doctorates and 53,400
“other”.
Yet, the numbers in the labour force were very different
and reflected the absolute disadvantage of the uneducated,
unskilled, semi skilled and even those with only secondary
education.
Those without education were 20,000 in the labour force,
12,000 among the employed, 8,000 among the unemployed (the
employed and unemployed make up the labour force) - and a
staggering 84,000 outside the workforce altogether.
The respective figures for those with incomplete education:
62,300, 44,200, 18,100, 136,300
For those with primary education (notice the marked
improvement in employability!!!):
220,800, 118,000, 103,100, 253,100
And for those with 3 years of secondary education:
106,100, 64,800, 41,200, 45,100
Those with only one additional year of secondary education
already look much better:
263,000, 176,000, 87,000, 106,300
And those with a higher education maintain European rates
of unemployment:
41,000, 32,700, 8,300, 13,400
Those with university degrees:
67,200, 54,100, 13,100, 13,900
Masters:
1,630, 1,560, 70
Doctorates:
1,156, 1,086, 70, 71
76.3% of all men were employed (82.6% of women), 4.3% were
employers (1.7%), 4.9% were self- employed (2.5%), 3.4%
worked in family owned businesses (7.5%), 10.8% of all men
worked in agriculture (and 5.6% of women).
Men made up 62.3% of the employed (women – 37.7%), 82.2% of
all employers (17.8%), 78% of the self employed (22%), 45%
of those employed in family businesses (55%), 77.5% of
those employed in agriculture (22.5%).
The Situation in 8/99
Economic underdevelopment, agrarian over-employment,
external shocks and an unrestructured economy led to an
increase in both structural and cyclical employment.
The supply side is still composed mainly of new entrants,
women and unskilled or semi-skilled labour as well as
educated workers.
The demand structure is incompatible with the supply. It is
made of replacement jobs, new jobs (mainly in labour
intensive industries), jobs generated by foreign entities.
The number of the unemployed broke yet another record in
1999 and reached 344,472 people. Of these, almost half –
154,000 – were unskilled. But the unemployed included 5
doctors, 34 holders of master’s degrees and 11,400 with
higher education. About 33,000 of these numbers were made
“technologically redundant” – the euphemism for being laid
off due to restructuring of enterprises or their closure.
By comparison, the number of employed people was only
316,000.
In the first 8 months of 1999 alone there were 6,000 new
unemployed per month versus a monthly average of 3,700 in
1998. This increase is attributed to the inclusion of
people who did not bother to register with the Employment
Bureau in the past.
The fiscal burden increased dramatically as contributions
deteriorated to 25% of the Employment Bureau’s financing
while the state budget contributed the remaining 75%, or 3
billion MKD (equal to 100 million DM or c. 1.7% of GDP).
The Employment Bureau also pays health insurance for about
200,000 unemployed workers.
The Labour Unions
The Association of Trade Unions in Macedonia (ATUM or CCM
in the Macedonian acronym) is a voluntary organization,
which encompasses 75% of all the employed workers in
Macedonia as its members.
It is organized in the level of firms and institutions and
has in excess of 2600 chapters. Additionally, it has about
150 chapters in the municipalities and in the various
industrial sectors (all 15 of them).
The typical Macedonian trade union is not supported by the
government and is entirely financed by its membership fees
(self sufficient).
The first collective agreement was signed in 1990 at which
time the idea of Economic Social Council was floated as
well as the idea of a tripartite
(government+employees+employers) dispute settlement
mechanism.
The Labour Relations act was passed in 1994 and instituted
national collective agreement for the economic sector
between CCM and the Board of Employers of the Economic
Chamber of Commerce of Macedonia. Another general
collective agreement covered all public services, public
companies, state organs, local authorities and legal
persons performing non-economic activities. This latter
general collective agreement was signed between CCM and the
Government of the Republic of Macedonia.
Yet a third set of more than 20 collective agreements
between CCM and various organs of the Chamber of Commerce
and ministries covered other sectors.
The Future of Unemployment in Macedonia
Public enterprise restructuring, privatization and reform
are likely to increase unemployment benefits by 200-300
million MKD annually (assuming only 2,000-3,000 workers are
fired, a very conservative assumption as there are 18,000
workers in the 12 major loss making state firms, whose
closure was demanded by the IMF).
Unemployment is very dependent on productivity and GDP
growth. The World Bank predicts that with a GDP growth of
0%, the total expenditures on unemployment benefits could
equal 2.3% of GDP. Even if GDP were to grow by 4% annually,
their projections show unemployment benefits equaling 1.6%
of GDP.
III. Bibliography
1. “Has Job Stability Declined Yet? New Evidence for
the 1990s”, NEBR working paper, December 1997.
2. “Job Tenure and Labour Market Regulation: a
Comparison of Britain and Italy using Micro
Data”, CEPR discussion paper, October 1997.
3. “A Disaggregate Analysis of the Evolution of Job
Tenure in Britain 1975-93”
4. “Monetary Union and European Unemployment”, CEPR
discussion paper No. 1485, October 1996.
5. “Policy Complementarities: The Case for
Fundamental Labour Market Reform” by David Coe
and Dennis Snower. IMF Staff Papers Volume 44,
No. 1, 1997.
6. “French Unemployment: Why France and the USA are
alike” by D. Cohen, A. Lefranc and G. Saint Paul.
Economic Policy 25, October 1997.
7. “Minimum Wages and Youth Unemployment in France
and the USA” by I. Abowd, F. Kramarz, T. Lemieux
and D. Margolis. NBER working paper 6111.
8. “Making the most of the minimum: statutory
minimum wages, employment and poverty”,
Employment Outlook, June 1998
9. “Symposium: The Natural Rate of Unemployment”,
Journal of Economic Perspectives, Winter 1997
10. “Rewarding Work” To be published by Harvard
University Press.
11. “The Role of Shocks and Institutions in the
Rise of European Unemployment: The Aggregate
Evidence” (http://www.web.mit.edu/blanchard)
12. “Job security Provisions and Employment”,
Quarterly Journal of Economics, August 1990.
13. Review Essay by Paul Gregg and Alan Manning
in Unemployment Policy, Eds. Dennis Snower and
Guillermo de la Dehesa, Cambridge University
Press, 1997.
14. “The Dutch Model”, Frits Bolkestein, By
Invitation, The Economist, May 22nd, 1999, pp. 97-
98
15. “Beer, Sandwiches and Statistics”, Economic
Focus, The economist, July 12th, 1997, p.78
16. “Agricultural Productivity, Comparative
advantage and Economic Growth”, Journal of
Economic Theory 58, 1992
17. “Deindustrialization”, World Economic
Outlook, April 1997
18. “Deindustrialization: Causes and
Implications” by Robert Rowthorn and Ramana
Ramaswamy. IMF working paper, April 1997.
19. “The Grabbing Hand: Government Pathologies
and their Cures” by Andrei Shleifer and Robert
Vishny. Harvard University Press.
20. “The Chemistry of Growth”, Economic Focus,
The Economist, March 6th, 1999, p.80.
21. “The Politics of Unemployment – Europe hits
a brick wall”, The Economist, April 5th, 1997,
p.19.
22. “Working man’s burden”, Economic Focus, The
economist, February 6th, 1999, p.88.
23. “An Assessment of Economic Reforms and
Country Competitiveness in Transition Economies:
Macedonia”. Compiled by Lidija Rangelovska for
the Harvard Institute of International
Development (HIID), July 1999.
24. “Statistical Yearbook of the Republic of
Macedonia, 1998”, Statistical Office of the
Republic of Macedonia, XXXIII, Skopje, November
1998, pp. 158-206
25. “National Development Strategy for Macedonia
– Development and Modernization”, Macedonian
Academy of Sciences and Arts, Skopje, 1997, pp.
127-147
26. “The Republic of Macedonia”, SIBIS, Skopje,
1996, pp. 59-60
27. “The Encyclopedia Britannica”, 1999 Edition
28. “Aide Memoire Public Expenditure
Institutional Review Mission”, July 19-30, 1999,
Draft 7/30/99
29. “IMF Fiscal Affairs Department – FYROM: Some
Options for Restructuring Government
Expenditures” by Sheetal K. Chand, Calvin
McDonald, Eric Haindl. November 1997.
30. “Program of the Republic of Macedonia for
stimulating investments with a special emphasis
on attracting foreign direct investments”, The
Government of the Republic of Macedonia, Skopje,
March 1999
31. “Republic of Macedonia – World Bank – Social
Support and Technical Assistance Project – Labour
Redeployment Program – Semiannual Report – June
1999” by The Privatization Agency of the Republic
of Macedonia – Project Coordination Unit –
Coordinator: Vladimir Sarac – Skopje, July 31,
1999.
32. ILO Convention no. 160 – “Convention on the
Statistics of Labour Force” (ILO 1992, p.1325).
33. “The Consequences of Labour Market
Flexibility: Panel Evidence Based on Survey
Data”, by R. Di Tella and R. MacCullouch, Harvard
Business School and ZEI, University of Bonn
respectively, April 28th, 1999.
The Labour Divide
I. Employment and Unemployment
By: Dr. Sam Vaknin
Also published by United Press International (UPI)
Communism abolished official unemployment. It had no place
in the dictatorship of the proletariat, where all means of
production were commonly owned. Underemployment was rife,
though. Many workers did little else besides punching cards
on their way in and out.
For a long time, it seemed as though Japan succeeded where
communism failed. Its unemployment rate was eerily low. It
has since climbed to exceed the United States' at 5.6%. As
was the case in Central and Eastern Europe, the glowing
figures hid a disheartening reality of underemployment,
inefficiency, and incestuous relationships between
manufacturers, suppliers, the government, and financial
institutions.
The landscape of labour has rarely undergone more all-
pervasive and thorough changes than in the last decade.
With the Cold War over, the world is in the throes of an
unprecedented economic transition. The confluence of new,
disruptive technologies, the collapse of non-capitalistic
modes of production, the evaporation of non-market
economies, mass migration (between 7.5% - in France - and
15% - in Switzerland - of European populations), and a
debilitating brain drain - altered the patterns of
employment and unemployment irreversibly and globally.
In this series of articles, I study this tectonic shift:
employment and unemployment, brain drain and migration,
entrepreneurship and workaholism, the role of trade unions,
and the future of work and retirement.
I. The True Picture
According to the ILO ("World Employment Report - 2001"),
more than 1 billion people - one third of the global
workforce - are either unemployed or underemployed. Even
hitherto "stable" countries have seen their situation
worsen as they failed to fully adjust to a world of labour
mobility, competitiveness, and globalization.
Unemployment in Poland may well be over 18% - in Argentina,
perhaps 25%. In many countries, unemployment is so
entrenched that no amount of aid and development seem to
affect it. This is the case in countries as diverse as
Macedonia (35% unemployment) and Zimbabwe (a whopping 60%).
The much heralded improvements in the OECD countries were
both marginal (long term unemployment declined from 35% of
the total to 31%) and reversible (unemployment is
vigorously regaining lost ground in Germany and France, for
instance).
Official global unemployment increased by 20 million people
(to 160 million) between the nadir of the Asian crisis in
1997 and 2001. The situation has much deteriorated since.
The ILO estimates that the world economy has to run (i.e.,
continue to expand as it has done in the roaring 1990's) -
in order to stay put (i.e., absorb 500 million workers
likely to be added to the global labour force until 2010).
How can this be achieved with China unwinding its state
sector (which employs 13% of its workforce) - is not clear.
Add to this stubbornly high birth rates (esp. in Africa)
and a steady decline in government hiring al over the world
- and the picture may be grimmer than advertised.
But the rate of unemployment is not a direct and exclusive
result of growth or the lack thereof. It is influenced by
government policies, market forces (including external
shocks), the business cycle, discrimination, and investment
- including by the private sector - in human capital.
The problem with devising effective ways of coping with
unemployment is that no one knows the true picture. Taking
into account internal, rural-to-urban, migration patterns
and the growth of the private sector (it now employs 5% of
the labour force) - China may have a real unemployment rate
of 9.5% (compared to the official figure of 3.1%). Egypt's
official rate is 8% -but it masks vast over-employment in
the public sector. Lebanon's is 9% - due to a one-time
reconstruction bonanza, financed by the billionaire-turned-
politician, Hariri. Algeria's unemployed easily amount to
half the work force - yet, the published rate is 29%. In
numerous countries - from Brazil to Sri Lanka - many people
are mainly employed in casual work.
The average unemployment rate in Central and Eastern Europe
is 14% - but it is double that (more than 30%) among the
young (compared to 15% for West European youths). The
average is misleading, though. In Georgia the rate is 70% -
in the Czech Republic 16%.
Even in the OECD, the tidal wave of part-time workers,
short term contracts, outsourcing, sub-contracting, and
self-employment - renders most figures rough
approximations. Part time work is now 20% of the OECD
workforce (German attempts to reverse the trend
notwithstanding). Temporary work and self-employment
constitute another 12% each. No one knows for sure how many
illegal economic migrants are there - but there are tens of
millions of legal ones.
II. The Facts
IIa. Labour Mobility
"Mobility", "globalization", "flextime" - media imagery
leads us to believe that we move around more often, and
change (less secure) jobs more frequently. It is not so. By
many measures, the world is less globalized today than it
was a century ago. Contrary to popular perceptions, job
tenure (in the first 8 years of employment) has not
declined, nor did labour mobility increase (according to
findings published by the NBER and CEPR). Firms' hiring and
firing practices are more flexible but this is because
"sarariman" jobs are out of fashion and many workers (80%
of them, according to the Employment Policy Foundation)
prefer casual work with temporary contracts.
Workers keep moving, as they always have, among firms and
between sectors. But they are still reluctant to relocate,
let alone emigrate. The subjective perception of job
insecurity is high, even after the most prosperous decade
in recent history. Witness the sparse movement of labour
among members of the EU, despite the existence, on paper,
of a single labour market. Still, rising systemic
unemployment everywhere serves to increase both the
efficiency and productivity of workers and to moderate
their wage claims.
IIb. Collective Bargaining
Studies linked collective bargaining to an increased wage
level, decreased hiring and more rigid labour markets. But
unionized labour has greatly contracted in almost all OECD
countries. Why has unemployment remained so persistently
high?
In France and the Netherlands collective agreements were
applied to non-unionized labour (close to four fifth of the
actually employed in the latter). Employment increases only
where both union membership and coverage by collective
agreements are down (USA, UK, New Zealand, Australia).
There are different models of wage bargaining. In the USA
and Canada agreements are sometimes signed at the firm or
even individual plant level. Throughout Scandinavia (though
this may be changing in Norway and Denmark now that centre-
right parties have won the elections), a single national
agreement prevails. There is no clear trend, though.
Britain, New Zealand and Sweden decentralized their
collective bargaining processes while Norway and Portugal
are still centralized.
Both types of bargaining - centralized and decentralized -
tend to moderate wage demands. Centralized bargaining
forces union leaders to consider the welfare of the entire
workforce. Either of the pure models seems preferable to a
hybrid system. The worst results are obtained with national
bargaining for specific industries. Hybrid-bargaining
Europe saw its unemployment soar from 3 to 11% in the last
25 years. Pure-bargaining USA maintained a low unemployment
rate of 5-6% during the same quarter century.
IIc. Unemployment Benefits
Blanchard and Wolfers studied 8 market rigidities in 20
countries (including the EU, USA, Canada, and Japan)
between the years 1960-96. The unemployment rate in an
imaginary composite of all the studied countries should
have risen by 7.2% in this period. But unemployment
increased by twice as much in countries with strict
employment protection laws compared to countries with laxer
labour legislation.
Unemployment in the country with the most generous
unemployment benefits grew five times more than in the most
parsimonious one. It grew our times faster in countries
with centralized wage bargaining than in countries with
utterly decentralized bargaining. Labour market rigidities
all amplify the effects of asymmetrical shocks - which
bodes ill for the eurozone.
Other studies (e.g., the 1994 OECD one year study, the more
substantial DiTella-MacCullouch study) seem to support
these findings. The transition from a rigid to a flexible
labour market does not yield immediate results because it
increases labour force participation. But the unemployment
rate is favorably affected later.
IId. Minimum Wages
In the USA, the minimum wage is 35% of the median wage (in
France it is 60%, in Britain - 45%, and in the Netherlands
it is declining). When wages are downward-flexible – more
lowly skilled jobs are created. A 1% rise in the minimum
wage reduces the probability of finding such a job by 2-
2.5% in both America and France, according to the NBER
(Lemieux and Margolis).
The proponents of minimum wages say they reduce poverty and
increase the equality of wealth distribution. Their
opponents (such as Peter Tulip of the Federal Reserve)
blame them for job destruction, mainly by raising the
NAIRU. The OECD's position is that wage regulation cannot
remedy poverty. As "The Economist" succinctly puts it, "few
low paid workers live in low-income households and few low-
income households include low paid workers. (Thus), the
benefits of the minimum wage, such as they are, largely
bypass the poor."
Again, it is important to realize that unemployment is not
universal - it is concentrated among the young, the old,
the under-educated, the unskilled, and the geographically
disadvantaged. One in eight of all workers under the age of
25 in the USA are unemployed, more than twice the national
average (the figure in France is one in four). A 10% rise
in the minimum wage - regardless of its level - reduces
teenage employment by 2-4%, calculates the OECD.
Many countries (USA, UK, France) introduced "training
wages" – actually, minimum wage exemptions for the young.
But even this sub-minimum wages still represent a high
percentage of mean youth earnings (53% in the USA and 72%
in France) and thus have an inhibiting effect on youth
employment.
Minimum wages do reduce inequality by altering the income
distribution and by equalizing wages across ages and
genders - but they have no effect on inequality and poverty
reduction, insists the OECD. "The Economist" quotes these
figures (in 1998):
"In American households with less than half the median
household income, only 33% of adults have a low-paid job.
(compared to 13% in the Netherlands and 5% in the UK). In
most poor households no one is employed in a regular job.
Many low earners, on the other hand, have well-paid
partners, or affluent parents ... Only 33% of those
Americans who earn less than two-thirds of the median wage
live in families whose income is less than half the
national median. (In the UK the figure is 10% and in
Ireland – 3%). Over a 5-year period, only 25% of low paid
Americans are in a poor family at some point; in Britain
10% are."
Thus, minimum wages seem to hurt poor families with
teenagers (by making teenage employment unattractive) while
benefiting mainly the middle class.
Still, the absolute level of the minimum wage seems to be
far more important that its level relative to the average
or median wage. Hungary's unemployment went down, from 9%
to 6%, while its minimum wage went up (in real terms) by
72% in 1998-2001. During the same four year period, its
economy grew by an enviable 5% a year, real wages
skyrocketed (by 17%), and its inflation dropped to 7% (from
16%).
IIe. Structural Unemployment
Most unemployment in Europe is structural (as high as 8.9%
in Germany, according to a 1999 IMF study). It is the
ossified result of decades of centralized wage bargaining,
strict job protection laws, and over-generous employment
benefits. The IMF puts structural unemployment in Europe at
9%. This is compared to the USA's 5% and the UK's 6% (down
from 9%). The remedies, though well known, are politically
unpalatable: flexible wages, mobile labour, the right
fiscal policy, labour market deregulation, and limiting
jobless benefits.
Some hesitant steps have been taken by the governments of
Germany and France (cut jobless benefits and turned a blind
eye to temporary and part-time work), by Italy (decoupled
benefits from inflation), and by Belgium, Spain and France
(reduced the minimum wage payable to young people).
But piecemeal reform is worse than no reform at all. In an
IMF Staff Paper, Coe and Snower describe the Spanish
attempt to introduce fixed term labour contracts. It
established two de facto classes of workers - the temporary
vs. the permanently employed - and, thus, reduced labour
market flexibility by granting increased bargaining power
to the latter. France introduced a truncated, 35-hours,
working week. Other countries imposed a freeze on hiring
with the aim of workforce attrition through retirement.
Yet, these "remedies" also led to an increase in the
bargaining power of the remaining workers and to
commensurate increases in real wages.
IIf. Unemployment and Inflation
Another common misperception is that there is some trade
off between unemployment and inflation. Both Friedman and
Phelps attacked this simplistic notion. Unemployment seems
to have a "natural" (equilibrium) rate, which is determined
by the structure and operation of the labour market and is
consistent with stable inflation (NAIRU – Non Accelerating
Inflation Rate of Unemployment).
NAIRU is not cast in stone. Employment subsidies, for
instance, make low skilled workers employable and lower
NAIRU. So do unilateral transfers which raise incomes.
According to Phelps, big drops in unemployment need not
greatly increase permanent inflation. Stiglitz calculated
that America's NAIRU may have dropped by 1.5% due to
increased competition in the markets for jobs and goods.
These findings are supported by other prominent economists.
Stiglitz concluded that NAIRU, in itself, is meaningless.
It is the gap between the estimated NAIRU and the actual
rate of unemployment that is a good predictor of inflation.
IIg. The Rhineland Model, the Poldermodel, and Other
European Ideas
The Anglo-Saxon variant of capitalism is intended to
maximize value for shareholders (often at the expense of
all other stakeholders).
The Rhineland model likes to think of itself as "capitalism
with a human face". It calls for an economy of consensus
among stakeholders (shareholders, management, workers,
government, banks, other creditors, suppliers, etc.)
Netherlands, too, has an advisory Social and Economic
Council. Another institution, the Labour Foundation is a
social partnership between employees and employers. Both
are relics of a corporatist past.
But the Netherlands saw its unemployment rate decline from
17% to less than 2% while ignoring both models and
inventing the "Poldermodel", a Third Way. Wim Duisenberg,
the Dutch Banker (currently Governor of the European
Central Bank), quoted in an extensive analysis of the
Poldermodel prepared for "The Economist" by Frits Bolkstein
(a former Dutch minister for foreign trade), attributed
this success to four elements:
1. Improving state finances
2. Pruning social security and other benefits and
transfers
3. Flexible labour markets
4. A Stable exchange rate
According to Thomas Mayer and Laurent Grillet-Aubert ("The
New Dutch Model"), the "Dutch Miracle" traces its
beginnings to 1982 and the Wassenaar Agreement in which
employers' organizations and trade unions settled on wage
moderation and job creation, mainly through
decentralization of wage bargaining. The government
contributed tax cuts to the deal (these served to
compensate for forgone wage increases). These cuts
generated a fiscal stimulus and prevented a contraction in
demand as a result of wage moderation. Additionally, both
social security payments and the minimum wage were
restricted. Wage increases were no longer matched by
corresponding increases in minimum social benefits. Working
hours, hiring, firing and collective bargaining were all
incorporated in a deregulated labour market.
Small and medium size businesses costly regulation was
relaxed. Generous social security and unemployment benefits
(a disincentive to find work) were scaled back. Sickness
benefits, vacation periods, maternal leave and unemployment
benefits were substantially adjusted.
The Netherlands did not shy from initiating public works
projects, though on a much smaller scale than France, for
instance. The latter financed these projects by raising
taxes and by increasing its budget deficit. The Dutch
preferred to rely on the free market.
Long term (more than 12 months) unemployment in Europe
constitutes 30% of the total. About half the entire
workforce under the age of 24 is unemployed in Spain - and
about one quarter in France and in Italy. Germany, Austria
and Denmark escaped this fate only by instituting
compulsory apprenticeship. But the young unemployed form
the tough and immutable kernel of long-term unemployment.
This is because a tug of war, a basic conflict of interest,
exists between the "haves" and "have-nots". The employed
wish to defend their monopoly and form "labour cartels".
This is especially true in dirigiste Europe.
While, in the USA, according to McKinsey, 85% of all
service jobs created between 1990-5 paid more than the
average salary – this was not the case in Europe. Add to
this European labour immobility - and a stable geographical
distribution of unemployment emerges.
The Dutch model sought to counter all these rigidities. In
a report about "The Politics of Unemployment" dated April
1997, "The Economist" admiringly enumerated these steps:
* The Dutch reduced social security contributions from
20% (1989) to 7.9% and they halved the income tax rate
to 7% (1994).
* They allowed part time workers to be paid less than
full timers, doing the same job.
* They abandoned sectoral central bargaining in favor of
decentralized national bargaining.
* They cut sickness benefits, unemployment insurance
(benefits) and disability insurance payments (by 10%
in 1991 alone – from 80% to 70%).
* They made it harder to qualify for unemployment (from
1995 no benefits were paid to those who chose to
remain unemployed).
* The burden of supporting the sick was shifted to the
employer / firm. In 1996, the employer was responsible
to pay for the first year of sickness benefits.
Even the Dutch model is not an unmitigated success, though.
More than 13% of the population are on disability benefits.
Only 74% of the economically active population is in the
workforce - one third of them in part time jobs.
But compare the Dutch experience to France's, for instance.
The Loi Robien exempted companies from some social security
contributions for 7 years, if they agree to put workers on
part time work instead of laying them off. Firms promptly
abused the law and restructured themselves at the
government's expense.
The next initiative was to reduce the working week to 35
hours. This was based on the "Lump of Labour Fallacy" – the
idea that there is a fixed quantity of work and that
reducing the working week from 39 to 35 hours will create
more jobs.
In Spain, hiring workers is unattractive because firing
them is cost-prohibitive. The government – faced with more
than 22% unemployment in the mid-90's – let more than 25%
of all workers go on part time contracts with less job
protection, by 2001.
Still, no one knows to authoritatively answer the following
substantial questions, despite the emergence of almost
universally applied UN-sponsored Standard National Job
Classifications:
How many are employed and not reported or registered? How
many are registered as unemployed but really have a job or
are self-employed? How many are part time workers – as
opposed to full time workers? How many are officially
employed – but de facto unemployed or underemployed? How
many are on "indefinite" vacations, on leave without pay,
on reduced pay, etc.?
Many countries have a vested interest to obscure the real
landscape of their destitution - either in order to prevent
social unrest, or in order to extract disproportionate
international aid. In a few countries, limited amnesties
were offered by the state for employers' violations of
worker registration. Firms were given a few, penalty-free,
weeks to register all their workers. Afterwards, labour
inspectors were supposed to embark on sampling raids and
penalize the non-compliers, if need be by closing down the
offending business. The results were dismal.
In most countries, the unemployed must register with the
Employment Bureau once a month, whether they receive their
benefits, or not. Non-compliance automatically triggers the
loss of benefits. In other countries, household surveys
were carried out - in addition to claimant counts and
labour force surveys, which deal with the structure of the
workforce, its geographical distribution, the pay
structure, and employment time probabilities.
Yet, none of these measures proved successful as long as
government policies - the core problem - remained the same.
Faced with this trenchant and socially corroding scourge -
governments have lately been experimenting with a variety
of options.
III. The Solutions
IIIa. Tweaking Unemployment Benefits
Unemployment benefits provide a strong disincentive to work
and, if too generous, may become self-perpetuating.
Ideally, unemployment benefits should be means tested and
limited in time, should decrease gradually and should be
withheld from school dropouts, those who never held a job,
and, arguably, as is the case in some countries, women
after childbearing. In the USA, unemployment benefits are
not available to farm workers, domestic servants, the
briefly employed, government workers and the self-
employed.
Copious research demonstrates that, to be effective,
unemployment benefits should not exceed short-term sickness
benefits (as they do in Canada, Denmark, and the
Netherlands). Optimally, they should be lower (as they are
in Greece, Germany and Hungary). Where sickness benefits
are earnings-related, unemployment benefits should be flat
(as is the case in Bulgaria and Italy). In Australia and
New Zealand, both sickness benefits and unemployment
benefits are means tested. Unemployment benefits should not
be higher than 40% of one's net average monthly wage (the
"replacement rate").
Most unemployment benefits are limited in time. In
Bulgaria, to 13 weeks, in Israel, Hungary, Italy and the
Netherlands to 6 months and in France, Germany, Luxemburg
and the United Kingdom – to 12 months. Only Belgium offered
time-unlimited unemployment benefits. In most countries,
once unemployment benefits end - social welfare payments
commence, though they are much lower (to encourage people
to find work).
In many countries in transition (e.g., in Macedonia), the
unemployed are eligible to receive health and pension
benefits upon registration. This - besides being an
enormous drain of state finances - encourages people to
register as unemployed even if they are not and distorts
the true picture.
Some countries, mainly in Central Europe, attempt to
provide lump sum block grants to municipalities and to
allow them to determine eligibility, to run their own
employment-enhancement programs, and to establish job
training and child care centers. Workers made redundant can
choose to either receive a lump sum or be eligible for
unemployment benefits.
A third approach involves the formation of private
unemployment, disability, and life, or health insurance and
savings plans to supplement or even replace the benefits
offered by the relevant state agencies.
An intriguing solution is the municipal "voucher
communities" of unemployed workers, who trade goods and
services among themselves (in the UK, in Australia, and in
Canada). They use a form of "internal money" – a voucher.
Thus, an unemployed electrician exchanges his services with
an unemployed teacher who, in return tutors the
electrician's off-spring. The unemployed are allowed to use
voucher money to pay for certain public goods and services
(such as health and education). Voucher money cannot be
redeemed or converted to real money – so it has no
inflationary or fiscal effects, though it does increase the
purchasing power of the unemployed.
IIIb. Enhancing Employability
In most such schemes, the state participates in the wage
costs of newly hired formerly unemployed workers – more
with every year the person remains employed. Employers
usually undertake to continue to employ the worker after
the state subsidy is over. Another ploy is linking the size
of investment incentives (including tax holidays) to the
potential increase in employment deriving from an
investment project. Using these methods, Israel succeeded
to absorb more than 400,000 working age immigrants from
Russia in the space of 5 years (1989-1994) - while reducing
its unemployment rate.
IIIc. Encouraging Labour Mobility
Workers are encouraged to respond promptly and positively
to employment signals, even if it means relocating. In many
countries, a worker is obliged to accept any job on offer
in a radius of 100 km from the worker's place of residence
on pain of losing his or her unemployment benefits. Many
governments (e.g., Israel, Yugoslavia, Russia, Canada,
Australia) offer the relocating worker financial and
logistical assistance as well as monetary and non-monetary
incentives.
The EU is considering to introduce standard fixed term
labour contracts. They would reduce the insupportable costs
and simplify the red tape now involved in hiring and
firing. The only country to buck the trend is Germany. It
is looking to equate the rights of part time workers and
full time ones. Similar ideas are debated in Britain. In
France and most countries in Central and Eastern Europe, to
dismiss a worker, the employer has to show that it has
restricted hiring, applied workforce attrition, and reduced
overall overtime. The EU's "social chapters" - now on of
every member's law books - provides sacked employees with
recourse to domestic and European courts against their
employers. In other parts of the world, the two parties are
subject to conciliation, mediation, or arbitration.
IIId. Reforming the Minimum Wage
Minimum wage hinders the formation of new workplaces - and
yet almost all countries have it. Both the USA and the UK
have just increased it. Many are considering a scaled
minimum wage, age-related, means tested, and skills-
dependent.
IIIe. Administrative Measures: Early Retirement
A favorite of post-communist countries in transition, early
retirement was liberally applied in order to get rid of
"technologically-redundant" workers and thus trim under-
employment.
Romania, for instance, offered its workers a handsome up-
front payment combined with unemployment benefits. A
special Early Retirement Fund was created by setting aside
receipts from the privatization of state assets and from
dividends received by the state from its various
shareholdings.
IIIf. Administrative Measures: Reduction of Working Hours
France has recently implemented the second phase of its
transition to a 35 hours working week, making it obligatory
for medium and small businesses. It is considered by many
economist to be a wasteful measure, based on the "lump of
labour" fallacy.
IIIg. Administrative Measures: Public Works
The Civilian Conservation Corps (CCC) was established in
the USA in 1932. It offered work for young and unmarried
men. They planted trees, erected flood barriers, put out
forest fires, and constructed forest roads and trails. They
lived in semi-military work camps, were provided with food
rations and a modest monthly cash allowance, medical care,
and other necessities.
At its apex, the CCC employed 500,000 people – and 3
million people throughout its existence. It was part of a
major "public works" drive known as "The New Deal". This
Keynesian tradition continues in many countries - from
deflationary Japan to racially imbalanced South Africa - to
this very day. Such workers are usually paid a salary equal
to their unemployment benefits (Workfare).
The Encyclopedia Britannica has this to say about public
works:
"The weakness in the proposal to use disguised unemployment
for the construction of social overhead capital projects
arises from inadequate consideration of the problem of
providing necessary subsistence funds to maintain the
workers during the long waiting period before the projects
yield consumable output. This can be managed somehow for
small-scale local community projects when workers are
maintained in situ by their relatives – but not when
workers move away. The only way to raise subsistence funds
is to encourage voluntary savings and expansion of
marketable surplus of food purchased with these savings."
Public works financed by grants or soft loans do serve as
an interim "unemployment sink" – a countercyclical buffer
against wild upswings in unemployment - but, for all we
know, they may simply be displacing existing employment at
great cost to the public purse.
IIIh. Administrative Measures: Public Education and
Dissemination of Information
Employment Bureaus throughout the world - spurred on by
stiff competition from the private sector - have
transformed themselves from mere registries to active (and
computerized) labour exchanges. Many also strive to educate
workers, retrain them, and enhance their employability
through the acquisition of new skills. The unemployed are
taught how to prepare a professional bio, a business plan,
a marketing plan, feasibility studies, credit applications
and interview skills.
Employment Bureaus now organize job clubs, labour exchanges
and employment fairs.
IIIi. National Employment Contract
Many countries - especially in Latin America and in Central
and Eastern Europe - have signed "National Employment
Contracts" between government, trade unions, employers
(represented by the Chamber of Commerce), and Central Bank.
In this neo-corporatist approach, employers usually
guarantee the formation of new work places against a freeze
on employee compensation, the exclusion of part time labour
from collective bargaining, and added flexibility on
minimum wages, job security, hiring and firing procedures,
social and unemployment benefits, indexation of wages and
benefits, the right to strike, and wage increases
(increasingly linked to productivity gains).
Trade unions, in return, are granted effective control of
the shop floor - issues like unemployment insurance,
employment protection, early retirement, working hours, old
age pensions, health insurance, housing, taxation, public
sector employment, vocational training, and regional aid
and subsidies to declining and infant industries.
In Sweden and Germany there is co-determination. Workers
are represented even in non-wage related matters (such as
the work organization).
Wages and unemployment benefits are perceived as
complementary economic stabilizers. Many countries
instituted an "Incomes Policy" intended to ensure that
employers, pressurized by unions, do not raise wages and
prices. In Sweden, for instance, both labour and management
organizations are responsible to maintain price stability.
The government can intervene in the negotiations and even
threaten a wage freeze, or wage AND price controls. In
Holland the courts can set wages.
Another possibility is a Guaranteed Wage Plan – Employers
assure minimum annual employment or minimum annual wages or
both to tenured employees. In return, firms and trade
unions forego seniority (LIFO, last in first out, firing
the newly hired first) and the employer is given a free
hand in hiring and firing employees, regardless of tenure.
IIIj. Labour Disputes Settlement
Most modern collective agreements require compulsory
dispute settlement through mediation and arbitration with
clear grievance procedures. Possibilities include
conciliation (a third party brings management and labour
together to try and solve the problems by themselves),
mediation (a third party makes nonbinding suggestions to
the parties), arbitration (a third party makes final,
binding decisions), or Peer Review Panels – where
management and labour rule together on grievances.
IIIk. Non-conventional Modes of Work
Work is no longer the straightforward affair it used to be.
In Denmark, a worker can take a special leave. He receives
80% of the maximum unemployment benefits as well as
uninterrupted continuity in his social security rights. But
he has to use the time for job training, a sabbatical,
further education, a parental leave, to take old people
(old parents or other relatives), or the terminally ill.
This is also the case in Belgium (though only for up to 2
months). These activities are thought of as substitutes for
social outlays.
In Britain, part time and full time workers are entitled to
the same benefits if wrongfully dismissed and in Holland,
the pension funds grant pensions to part time workers. In
many countries, night, shift and weekend workers are
granted special treatment by law and by collective contract
(for instance, exemption from social benefits
contributions).
Most OECD countries now encourage (or tolerate) part-time,
flextime, from home, seasonal, casual, and job sharing
work. Two people sharing the same job as well as shift
workers are allowed to choose to be treated, for tax
purposes and for the purposes of unemployment benefits,
either as one person or as two persons. In Bulgaria,
Macedonia, and a host of other post-communist countries, a
national part time employment program (called in Macedonia
the "Mladinska Zadruga") encourages employers to hire the
unemployed on a short term, part time basis
IIIl. Full Employment Budgets
The national accounts of many countries now produce a full
employment budget. It adjusts the budget deficit or surplus
in relation to effects of deviations from full or normal
unemployment. Thus, a simple balanced budget could be
actually contractionary. A simple deficit may, actually, be
a surplus on a full employment basis and government
policies can be contractionary despite positive borrowing.
IIIm. Apprenticeship, Training, Retraining and Re-
Qualification
In France, Germany, the UK, the USA, and many other
countries, sub-minimum wages are paid to participants in
apprenticeship and training programs. Most of the
unemployed can be retrained, regardless of age and level of
education. This surprising result has emerged from many
studies.
The massive retraining and re-qualification programs
required by the technological upheavals of the last few
decades are often undertaken in collaboration with the
private sector. The government trains, re-trains, or re-
qualifies the unemployed – and firms in the private sector
undertake to employ them for a minimal period of time
afterwards. It is a partnership, with the government acting
as educational sub-contractor for the business sector (with
emphasis on the needs of small to medium enterprises) and a
catalyst of skill acquisition. Such programs include
vocational training, entrepreneurship skills, management
skills, and even basic literacy and numeracy. Students are
often employed as instructors in return for college credits
and scholarships.
IIIn. Entrepreneurship and Small Businesses
Small businesses are the engine of growth and job creation
in all modern economies. Even the governments of rich
countries encourage innovative credit schemes (such as
micro-credits) and facilities (such as business
incubators), tax credits, and preference to small
businesses in government procurement.
The Labour Divide
II. Migration and Brain Drain
By: Dr. Sam Vaknin
Also published by United Press International (UPI)
Human trafficking and people smuggling are multi-billion
dollar industries. At least 50% of the 150 million
immigrants the world over are illegal aliens. There are 80
million migrant workers found in virtually every country.
They flee war, urban terrorism, crippling poverty,
corruption, authoritarianism, nepotism, cronyism, and
unemployment. Their main destinations are the EU and the
USA - but many end up in lesser countries in Asia or
Africa.
The International Labour Organization (ILO) published the
following figures in 1997:
Africa had 20 Million migrant workers, North America - 17
million, Central and South America - 12 million, Asia - 7
million, the Middle East - 9 million, and Europe - 30
million.
Immigrants make up 15% of staid Switzerland's population,
9% of Germany's and Austria's, 7.5% of France's (though
less than 4% of multi-cultural Blairite Britain). There are
more than 15 million people born in Latin America living in
the States. According to the American Census Bureau,
foreign workers comprise 13% of the workforce (up from 9%
in 1990). A million have left Russia for Israel. In this
past century, the world has experienced its most sweeping
wave of both voluntary and forced immigration - and it does
not seem to have abated.
According to the United Nations Population Division, the EU
would need to import 1.6 million migrant workers annually
to maintain its current level of working age population.
But it would need almost 9 times as many to preserve a
stable workers to pensioners ratio.
The EU may cope with this shortage by simply increasing
labour force participation (74% in labour-short
Netherlands, for instance). Or it may coerce its unemployed
(and women) into low-paid and 3-d (dirty, dangerous, and
difficult) jobs. Or it may prolong working life by
postponing retirement.
These are not politically palatable decisions. Yet, a wave
of xenophobia that hurtled lately across a startled Europe
- from Austria to Denmark - won't allow the EU to adopt the
only other solution: mass (though controlled and skill-
selective) migration.
As a result, Europe has recently tightened its admission
(and asylum) policies even more than it has in the 1970's.
It bolted and shut its gates to primary (economic)
migration. Only family reunifications are permitted. Well
over 80% of all immigrants to Britain are women joining
their husbands, or children joining their father. Migrant
workers are often discriminated against and abused and many
are expelled intermittently.
Still, economic migrants - lured by European riches - keep
pouring in illegally (about half a million every year -to
believe The Centre for Migration Policy Development in
Vienna). Europe is the target of twice as many illegal
migrants as the USA. Many of them (known as "labour
tourists") shuttle across borders seasonally, or commute
between home and work - sometimes daily. Hence the EU's
apprehension at allowing free movement of labour from the
candidate countries and the "transition periods" (really
moratoria) it wishes to impose on them following their long
postponed accession.
According to the American Census Bureau's March 2002
"Current Population Survey", 20% of all US residents are of
"foreign stock" (one quarter of them Mexican). They earn
less than native-born Americans and are less likely to have
health insurance. They are (on average) less educated (only
67% of immigrants age 25 and older completed high school
compared to 87% of native-born Americans). Their median
income, at $36,000 is 10% lower and only 49% of them own a
home (compared to 67% of households headed by native-born
Americans). The averages mask huge disparities between
Asians and Hispanics, though. Still, these ostensibly
dismal figures constitute a vast improvement over
comparable data in the country of origin.
But these are the distant echoes of past patterns of
migration. Traditional immigration is becoming gradually
less attractive. Immigrants who came to Canada between
1985-1998 earn only 66% of the wages of their predecessors.
Labour force participation of immigrants fell to 68% (1996)
from 86% (1981).
While most immigrants until the 1980's were poor,
uneducated, and unskilled - the current lot is middle-
class, reasonably affluent, well educated, and highly
skilled. This phenomenon - the exodus of elites from all
the developing and less developed countries - is called
"brain drain", or "brain hemorrhage" by its detractors (and
"brain exchange" or "brain mobility" by its proponents).
These metaphors conjure up images of the inevitable
outcomes of some mysterious processes, the market's
invisible hand plucking the choicest and teleporting them
to more abundant grounds.
Yet, this is far from being true. The developed countries,
once a source of such emigration themselves (more than
100,000 European scientists left for the USA in the wake of
the Second World War) - actively seek to become its
destination by selectively attracting only the skilled and
educated citizens of developing countries. They offer them
higher salaries, a legal status (however contingent), and
tempting attendant perks. The countries of origin cannot
compete, able to offer only $50 a month salaries, crumbling
universities, shortages of books and lab equipment, and an
intellectual wasteland.
The European Commission had this to say last month:
"The Commission proposes, therefore, that the Union
recognize the realities of the situation of today: that on
the one hand migratory pressures will continue and that on
the other hand in a context of economic growth and a
declining and aging population, Europe needs immigrants. In
this context our objective is not the quantitative increase
in migratory flows but better management in qualitative
terms so as to realize more fully the potential of
immigrants' admitted."
And the EU's Social and Employment Commission added, as it
forecast a deficit of 1.7 million workers in Information
and Communications Technologies throughout the Union:
"A declining EU workforce due to demographic changes
suggests that immigration of third country nationals would
also help satisfy some of the skill needs [in the EU].
Reforms of tax benefit systems may be necessary to help
people make up their minds to move to a location where they
can get a job...while ensuring that the social objectives
of welfare systems are not undermined."
In Hong Kong, the "Admission of Talents Scheme" (1999) and
"The Admission of Mainland Professionals Scheme" (May 2001)
allow mainlanders to enter it for 12 month periods, if
they:
"Possess outstanding qualifications, expertise or skills
which are needed but not readily available in Hong Kong.
They must have good academic qualifications, normally a
doctorate degree in the relevant field."
According the January 2002 issue of "Migration News", even
now, with unemployment running at almost 6%, the US H1-B
visa program allows 195,000 foreigners with academic
degrees to enter the US for up to 6 years and "upgrade" to
immigrant status while in residence. Many H1-B visas were
cancelled due to the latest economic slowdown - but the US
provides other kinds of visas (E type) to people who invest
in its territory by, for instance, opening a consultancy.
The UK has just implemented the Highly Skilled Migrant
Programme which allows "highly mobile people with the
special talents that are required in a modern economy" to
enter the UK for a period of one year (with indefinite
renewal). Even xenophobic Japan allowed in 222,000
qualified foreigners last year (double the figure in 1994).
Germany has absorbed 10,000 computer programmers (mainly
from India and Eastern Europe) since July 2000. Ireland was
planning to import twenty times as many over 7 years -
before the dotcoms bombed. According to "The Economist",
more than 10,000 teachers have left Ecuador since 1998.
More than half of all Ghanaian medical doctors have
emigrated (120 in 1998 alone). More than 60% of all
Ethiopian students abroad never return. There are 64,000
university educated Nigerians in the USA alone. More than
43% of all Africans living in North America have acquired
at least a bachelor's degree.
Barry Chiswick and Timothy Hatton demonstrated
("International Migration and the Integration of Labour
Markets", published by the NBER in its "Globalisation in
Historical Perspective") that, as the economies of poor
countries improve, emigration increases because people
become sufficiently wealthy to finance the trip.
Poorer countries invest an average of $50,000 of their
painfully scarce resources in every university graduate -
only to witness most of them emigrate to richer places. The
haves-not thus end up subsidizing the haves by exporting
their human capital, the prospective members of their
dwindling elites, and the taxes they would have paid had
they stayed put. The formation of a middle class is often
irreversibly hindered by an all-pervasive brain drain.
Politicians in some countries decry this trend and deride
those emigrating. In a famous interview on state TV, the
late prime minister of Israel, Yitzhak Rabin, described
them as "a fallout of the jaded". But in many impoverished
countries, local kleptocracies welcome the brain drain as
it also drains the country of potential political
adversaries.
Emigration also tends to decrease competitiveness. It
increase salaries at home by reducing supply in the labour
market (and reduces salaries at the receiving end,
especially for unskilled workers). Illegal migration has an
even stronger downward effect on wages in the recipient
country - illegal aliens tend to earn less than their legal
compatriots. The countries of origin, whose intellectual
elites are depleted by the brain drain, are often forced to
resort to hiring (expensive) foreigners. African countries
spend more than $4 billion annually on foreign experts,
managers, scientists, programmers, and teachers.
Still, remittances by immigrants to their relatives back
home constitute up to 10% of the GDP of certain countries -
and up to 40% of national foreign exchange revenues. The
World Bank estimates that Latin American and Caribbean
nationals received $15 billion in remittances in 2000 - ten
times the 1980 figure. This may well be a gross
underestimate. Mexicans alone remitted $6.7 billion in the
first 9 months of 2001 (though job losses and reduced hours
may have since adversely affected remittances). The IADB
thinks that remittances will total $300 billion in the next
decade (Latin American immigrants send home c. 15% of their
wages).
Official remittances (many go through unmonitored money
transfer channels, such as the Asian Hawala network) are
larger than all foreign aid combined. "The Economist"
calculates that workers' remittances in Latin America and
the Caribbean are three times as large as aggregate foreign
aid and larger than export proceeds. Yet, this pecuniary
flood is mostly used to finance the consumption of basics:
staple foods, shelter, maintenance, clothing. It is non-
productive capital.
Only a tiny part of the money ends up as investment.
Countries - from Mexico to Israel, and from Macedonia to
Guatemala - are trying to tap into the considerable wealth
of their diasporas by issuing remittance-bonds, by offering
tax holidays, one-stop-shop facilities, business
incubators, and direct access to decision makers - as well
as matching investment funds.
Migrant associations are sprouting all over the Western
world, often at the behest of municipal authorities back
home. The UNDP, the International Organization of Migration
(IOM), as well as many governments (e.g., Israel, China,
Venezuela, Uruguay, Ethiopia), encourage expatriates to
share their skills with their counterparts in their country
of origin. The thriving hi-tech industries in Israel,
India, Ireland, Taiwan, and South Korea were founded by
returning migrants who brought with them not only capital
to invest and contacts - but also entrepreneurial skills
and cutting edge technologies.
Thailand established in 1997, within the National Science
and Technology Development Agency, a 2.2 billion baht
project called "Reverse the Brain Drain". Its aim is to
"use the 'brain' and 'connections' of Thai professionals
living overseas to help in the Development of Thailand,
particularly in science and technology."
The OECD ("International Mobility of the Highly Skilled")
believes that:
"More and more highly skilled workers are moving abroad for
jobs, encouraging innovation to circulate and helping to
boost economic growth around the globe."
But it admits that a "greater co-operation between sending
and receiving countries is needed to ensure a fair
distribution of benefits".
The OECD noted, in its "Annual Trends in International
Migration, 2001" that (to quote its press release):
"Migration involving qualified and highly qualified workers
rose sharply between 1999 and 2000, helped by better
employment prospects and the easing of entry conditions.
Instead of granting initial temporary work permits only for
one year, as in the past, some OECD countries, particularly
in Europe, have been issuing them for up to five years and
generally making them renewable. Countries such as
Australia and Canada, where migration policies were mainly
aimed at permanent settlers, are also now favoring
temporary work permits valid for between three and six
years ... In addition to a general increase in economic
prosperity, one of the main factors behind the recent
increase in worker migration has been the development of
information technology, a sector where in 2000 there was a
shortage of around 850,000 technicians in the US and nearly
2 million in Europe ..."
But the OECD underplays the importance of brain drain:
"Fears of a "brain drain" from developing to
technologically advanced countries may be exaggerated,
given that many professionals do eventually return to their
country of origin. To avoid the loss of highly qualified
workers, however, developing countries need to build their
own innovation and research facilities ... China, for
example, has recently launched a program aimed at
developing 100 selected universities into world-class
research centers. Another way to ensure return ... could be
to encourage students to study abroad while making study
grants conditional on the student's return home."
The key to a pacific and prosperous future lies in a
multilateral agreement between brain-exporting, brain-
importing, and transit countries. Such an agreement should
facilitate the sharing of the benefits accruing from
migration and "brain exchange" among host countries,
countries of origin, and transit countries. In the absence
of such a legal instrument, resentment among poorer nations
is likely to grow even as the mushrooming needs of richer
nations lead them to snatch more and more brains from their
already woefully depleted sources.
The Labour Divide
III. Entrepreneurship and Workaholism
By: Dr. Sam Vaknin
Also published by United Press International (UPI)
The Dutch proudly point to their current rate of
unemployment at less than 2%. Labour force participation is
at a historically high 74% (although in potential man-hour
terms it stands at 62%). France is as hubristic with its
labour policies - the 35 hours week and the earlier
reduction in employers' participation in social
contributions. Employment is sharply up in a host of
countries with liberalized labour markets - Britain, Spain,
Ireland, Finland. The ECB brags that employment in the euro
zone has been rising faster than in the USA since 1997.
This is a bit misleading. Euro zone unemployment is far
higher and labour force participation far lower than
America's. The young are especially disadvantaged. Only
Britain is up to American standards. The European labour
market is highly inefficient in matching demand and supply.
Labour mobility among regions and countries is glacial and
generous unemployment benefits are a disincentive to find a
job.
Reforms are creeping into the legislative agendas of
countries as diverse as Italy and Germany. Labour laws are
re-written to simplify hiring and firing practices and to
expand the role of private employment agencies. But
militant unions - such as Germany's IG Metal - threaten to
undo all the recent gains in productivity and wage
restraint.
The European Commission - a bastion of "social Europe" -
has just equalized the rights and benefits of temporary
workers (with more than 6 weeks of tenure) and full-time
ones. Yet another reformist adviser to the Italian Minister
of Labour was assassinated. This was followed by a million-
workers strong demonstration in Rome's Circo Massimo
against minor reforms in firing practices.
But the most successful and efficient labour market in the
world, in the States, is associated with a different ethos
and an idiosyncratic sociology of work. The frame of mind
of the American employee and his employer is fundamentally
at odds with European mentality. In Europe, one is entitled
to be employed, it is a basic human right and a public
good. Employers - firms and businessmen - are parties to a
social treaty within a community of stakeholders with
equipotent rights. Decisions are reached by consensus and
consultation. Peer pressure and social oversight are
strong.
Contrast this with the two engines of American economic
growth: entrepreneurship and workaholism.
The USA, according to the "Global Entrepreneurship
Monitor", is behind South Korea and Brazil in
entrepreneurial activity prevalence index. But 7 percent of
its population invested an average of $4000 per person in
start-ups in 2000.
A 10-country study conducted in 1997-9 by Babson College,
the London School of Business, and the Kauffman Center for
Entrepreneurial Leadership found gaping disparities between
countries. More than 8 percent of all Americans started a
new business - compared to less than 1.5 percent in
Finland. Entrepreneurship accounted for one third of the
difference in economic growth rates among the surveyed
countries.
Entrepreneurship is a national state of mind, a vestige of
the dominant culture, an ethos. While in Europe bankruptcy
is a suicide-inducing disgrace bordering on the criminal -
in the USA it is an integral and important part of the
learning curve. In the USA, entrepreneurs are social role
models, widely admired and imitated. In Europe they are
regarded with suspicion as receptacles of avarice and non-
conformity. It is common in the States to choose
entrepreneurship as a long-term career path. In Europe it
is considered professional suicide.
In the USA, entrepreneurs are supported by an evolved
network of financial institutions and venues: venture
capital (VC), Initial Public Offerings (IPO's) in a
multitude of stock exchanges, angel investors, incubators,
technological parks, favourable taxation of stock options,
and so on. Venture capitalists invested $18 billion in
start-ups in 1998, $48 in 1999, almost $100 billion in
2000.
The dot.com crash deflated this tsunami - but only
temporarily. US venture capitalists still invest four times
the average of their brethren elsewhere - c. 0.5 percent of
GDP. This translates to an average investment per start up
ten times larger than the average investment outside
America.
American investors also power the VC industry in the UK,
Israel, and Japan. A Deloitte Touche survey conducted last
month (and reported in the Financial Times) shows that a
whopping 89 percent of all venture capitalists predict an
increase in the value of their investments and in their
exit valuations in the next 6 months.
Entrepreneurs in the USA still face many obstacles - from
insufficient infrastructure to severe shortages in skilled
manpower. The July 2001 report of the National Commission
on Entrepreneurship (NCOE) said that less than 5 percent of
American firms that existed in 1991 grew their employment
by 15 percent annually since, or doubled their employment
in the feverish markets of 1992-7. But the report found
high growth companies virtually everywhere - and most of
them were not "hi-tech" either. Start-ups capitalized on
the economic strengths of each of the 394 regions of the
USA.
As opposed to the stodgy countries of the EU, many post-
communist countries in transition (e.g., Russia, Estonia)
have chosen to emulate the American model of job creation
and economic growth through the formation of new
businesses. International financial institutions - such as
the EBRD and the World Bank - provided credit lines
dedicated to small and medium enterprises in these
countries. As opposed to the USA, entrepreneurship has
spread among all segments of the population in Central and
Eastern Europe.
In a paper, prepared for USAID by the IRIS Centre in the
University of Maryland, the authors note the surprising
participation of women - they own more than 40% of all
businesses established between 1990-7 in Hungary and 38% of
all businesses in Poland.
Virtually all governments, east and west, support their
"small business" or "small and medium enterprises" sector.
The USA's Small Business Administration had its loan
guarantee authority cut by half - yet to a still enviable
$5 billion in FY 2003. But other departments have picked up
the slack.
The US Department of Agriculture (USDA) beefed up its Rural
Business-Cooperative Service. The Economic Development
Administration (EDA) supports "economically-distressed
areas, regions, and communities". The International Trade
Administration (ITA) helps exporters - as do OPIC (Overseas
Private Investment Corporation), the US Commercial Service,
the Department of Commerce (mainly through its Technology
Administration), the Minority Business Development Agency,
the US Department of Treasury, and a myriad other
organizations - governmental, non-governmental, and private
sector.
Another key player is academe. New proposed bipartisan
legislation will earmark $20 million to encourage
universities to set up business incubators. Research
institutes all over the world - from Israel to the UK -
work closely with start-ups and entrepreneurs to develop
new products and license them. They often spawn joint
ventures with commercial enterprises or spin-off their own
firms to exploit technologies developed by their
scientists.
MIT's Technology Licensing Office processes two inventions
a day and files 3-5 patent applications a week. Since 1988,
it started 100 new companies. It works closely with the
Cambridge Entrepreneurship Center (UK), the Asian
Entrepreneurship Development Center (Taiwan), the Turkish
Venture Capital Association, and other institutions in
Japan, Israel, Canada, and Latin America.
This is part of a much larger wave of in-house corporate
innovation dubbed "intrapreneurship". The most famous
example is "Post-It" which was developed, in-house, by a 3M
employee and funded by the company. But all major and
medium American firms encourage institutionalized
intrapreneurship.
Entrepreneurship and intrapreneurship are often associated
with another American phenomenon - the workaholic. Bryan
Robinson in his 1998 tome, "Chained to the Desk",
identifies four types of workaholism (or "work addiction"):
1. The Bulimic Workaholic Style - "Either I do it perfectly
or not at all"
2. The Relentless Workaholic Style - "It has to be finished
yesterday"
3. Attention-Deficit Workaholic Style - adrenaline junkies
who use work as a focusing device
4. Savouring Workaholic Style - slow, methodical, and
overly scrupulous workers
Workaholism is confused by most Americans with "hard work",
a pillar of the Protestant work ethic, by now an American
ethos. Employers demand long work hours from their
employees. Dedication to one's work results in higher
financial rewards and faster promotion. Technology fosters
a "work everywhere, work anytime" environment.
Even before the introduction of the 35 hours week in
France, Americans worked 5 weekly hours more than the
French, according to a 1998 study by the Families and Work
Institute. Americans also out-worked the industrious
Germans by 4 hours and the British by 1 hour. The average
American work week has increased by 10% (to 44 weekly
hours) between 1977-98.
One third of all American bring work home, yet another
increase of 10% over the same period. According to the
Economic Policy Institute, Germans (and Italians) took 42
days of vacation a year in 1998 - compared to 19 days taken
by Americans. This figure may have since deteriorated to 13
annual vacation days. Even the Japanese take 25 days a
year.
In a survey conducted by Oxford Health Plans, 34 percent of
all respondents described their jobs as "pressing and with
no downtime". Thirty two percent never left the building
during the working day and had lunch at their desk.
Management promotes only people who work late, believed a
full one seventh.
Most Europeans - with the notable exception of the British
- regard their leisure and vacation times as well as time
dedicated to family and friends as important components in
a balanced life - no less important than the time they
spend at work. They keep these realms strictly demarcated.
Work addiction is gradually encroaching on the European
work scene as well. But many Europeans still find American
- and, increasingly British - obsession with work to be a
distasteful part of the much derided "Anglo-Saxon" model of
capitalism. They point at the severe health problems
suffered by workaholics - three times as many heart
failures as their non-addicted peers.
More than 10,000 workers died in 1997 in Japan from work-
stress related problems ("Karoshi") . The Japanese are even
more workaholic than the Americans - a relatively new
phenomenon there, according to Testsuro Kato, a professor
of political science in Hitotsubashi University.
But what is the impact of all this on employment and the
shape of labour?
The NCOE identifies five common myths pertaining to
entrepreneurial growth companies:
1. The risk taking myth - "Most successful entrepreneurs
take wild, uncalculated risks in starting their companies".
2. The hi-tech invention myth - "Most successful
entrepreneurs start their companies with a breakthrough
invention - usually technological in nature".
3. The expert myth - "Most successful entrepreneurs have
strong track records and years of experience in their
industries".
4. The strategic vision myth - "Most successful
entrepreneurs have a well-considered business plan and have
researched and developed their ideas before taking action".
5. The venture capital myth - "Most successful
entrepreneurs start their companies with millions in
venture capital to develop their idea, buy supplies, and
hire employees".
Entrepreneurship overlaps with two other workplace
revolutions: self-employment and flexitime. The number of
new businesses started each year in the USA tripled from
the 1960's to almost 800,000 in the 1990's. Taking into
account home-based and part-time ventures - the number
soars to an incredible 5 million new businesses a year.
Most entrepreneurs are self-employed and work flexible
hours from home on ever-changing assignments. This
kaleidoscopic pattern has already "infected" Europe and is
spreading to Asia.
Small businesses absorbed many of the workers made
redundant in the corporate downsizing fad of the 1980's.
They are the backbone of the services and knowledge
economy. Traditional corporations often outsource many of
their hitherto in-house functions to such nascent, mom-and-
pop, companies (the "virtual corporation"). Small and
medium businesses network extensively, thus reducing their
overhead and increasing their flexibility and mobility. The
future belongs to these proliferating small businesses and
to those ever-fewer giant multinationals which will master
the art of harnessing them.
The Labour Divide
IV. The Unions after Communism
By: Dr. Sam Vaknin
Also published by United Press International (UPI)
Self Defense started as a Polish farmers' trade union a
decade ago. It leveraged its populist and activist message
to capture 20 percent of the electorate, at least in recent
opinion polls. Last week it failed to bring Poland to a
halt in protest against liberals in the central bank and
iniquitous bureaucrats in Brussels. In the last elections
it won 10 percent of the votes and 53 seats.
When the Belarusian Federation of Trade Unions convoked a
rally against the government's bungled economic policies at
the end of March, less than 1000 people turned up.
Restrictions imposed by the often violent authorities
coupled with sabotage by pro-government unions assured the
dismal flop.
Public sector trade unions in Macedonia have been more
successful in extracting concessions from the government in
an election year, though not before they embarked on a
nation-wide strike timed to coincide with an ill-fated
visit of the IMF mission. Despite strident warnings from
the itinerant delegates, the minimum wage was raised
heftily as were salaries in the public sector. The unions
are about to strike again in an effort to extend the
settlement to other state functionaries.
Romanian union members took the streets on May 30
threatening to emulate Argentina's mass protests and
shouting ominous anti-government and anti-IMF slogans. The
government buckled under and agreed to raise the minimum
wage by 70 percent within 12 months - as an opening gambit
in the forthcoming round of bargaining. Industrial action
in Romania in the past often ended in bloodshed and its
governments are mindful of it. An agreement was signed with
the prime minister on June 11.
On June 20, Spain's trade unions went on a general strike,
contesting the prime minister's advanced plans to reform
both hiring and firing laws and unemployment benefits. With
both job protection and social safety nets threatened, the
unions' success was less than striking. Only socialist
dominated regions and cities responded and demonstrations
flared up in only a couple of places.
The murder of a - second - government advisor on labor
legislation in March has stiffened the Italian authorities'
resolve to amend, however marginally, provisions pertaining
to the reinstatement of "unfairly sacked" employees. Two
small trade unions - CISL and UIL - have signed an
agreement with the government last week, ditching a common
front with CGIL, by far the largest syndicate with 5.4
million members. CGIL called for regional strikes through
July 11, followed by a general strike in September and
October. It will also challenge the amendments to the law
in the Constitutional Court.
Solidarity recently called upon the Polish administration
to withdraw its amendments to the labor code and to allow
it to negotiate with employers the voluntary expunging of
anti-labor clauses. In what they called a "historic
manifestation", Solidarity teamed up with erstwhile rival
left-wing union to demonstrate in front of the Ministry of
Labor. About 400 people showed up.
The one country bucking the trend may be Tony Blair's
United Kingdom. It has adopted a minimum wage and forces
employers to bargain collectively with unions if most of
their employees want them to. The number of such
"recognition" agreements, according to "The Economist",
tripled between 2000 and 2001, to 470. Union membership in
the service sector and among women is rising.
Working days lost to strikes in Britain doubled from 1997,
to almost 500,000 last year and the year before. Although a
far cry from the likes of Ireland, Spain, France, and Italy
- it is a worrisome trend. Interesting to note that many of
the strikes are the result of performance-related wage gaps
opening up among workers following botched privatizations
(e.g., the railways, the post office). Bellicose, fogeyish,
trade unions leverage the discontent bred by mismanagement
to their advantage.
Failure to mobilize workers, half-hearted activism,
acquiescence with policies implemented by right-wing
governments, transformation into political parties, growing
populism and anti-Europeanism - these are the hallmarks of
these social movements in search of a cause.
As more and more workers join the ranks of the middle
class, own shares, participate in management through
stakeholder councils, go entrepreneurial or self-employed,
join the mostly non-unionized service sector, compete with
non-unionized and thus more competitive workers in their
own country or globally, become temporary and contract
workers, or lose their jobs - union membership plummets.
The ignominious implosion of Communism and socialism
throughout Europe tainted the trade union movement, often
linked to both. Membership was halved in Britain in the lat
two decades. Union membership among the young in heavily
unionized Sweden slumped to 47 percent last year - from 62
percent in 1995.
The failure of trade unions the world over to modernize
only exacerbates this inexorable decline. The structure of
a traditional trade union often reflected the configuration
of the enterprise it had to tackle - hierarchical,
centralized, top-down. But rigorously stratified
corporations went the way of central planning.
Business resembles self-assembling ad-hoc networks, or a
guerilla force - rather than the bottom heavy and
elephantine organization of the early 20th century, when
most unions were formed. Individual workers adapted to the
ever-changing requirements of ever-shifting markets by
increasing their mobility and adaptability and by immersing
themselves in life-long education and training.
Consider the two ends of the spectrum: agency, freelance,
and fixed-term contract employees (or even illegal aliens)
and executives. Both are peripatetic. Workplace-orientated
trade unionism cannot cater to their needs because they
rarely stay put and because their skills are transferable.
The UK's Economic and Social research Council Future of
Work Programme, launched in 1998, studied the role of trade
unions in the rapidly changing landscape of labor. In
Working Paper no. 7 titled "Beyond the Enterprise? Trade
Unions and the Representation of Contingent Workers"
published last year by the Cardiff Business School, the
authors say:
"The empirical pattern revealed by the research is complex
... We also encountered situations where unions had made
use of enterprise unionism to represent contingent workers.
For example, enterprise collective agreements may be used
to regulate the numbers of contingent workers employed
together with their terms and conditions ... Departure from
the enterprise model was most apparent within unions that
organize freelance workers. The latter are mobile workers
and unions adapt to their mobility by reliance on non-
enterprise forms of representation. Amongst agency and
fixed-term contract workers, however, there is more
emphasis on integration of the needs of these workers in
the dominant, enterprise model of union representation. In
part, this reflects the fact that agency and contract
workers can develop a long-term employment relationship
..."
Trade unions are adapting by modifying their recruitment
methods. Unions solicit members in employment bureaus, temp
agencies, job fairs. They offer "customized packages" of
workplace-independent benefits and services dispensed by
paid, roving, union officials, or sub-contractors. Many
unions re-organized along geographical - rather than
sectoral or enterprise-wide - lines.
Syndicates are in the throes of appropriating functions
from both the public and the private sector. Some unions
offer job placement services, training, requalification,
and skill acquisition classes, legal aid, help in setting
up a business, seminars and courses on anything from
assertiveness to the art of negotiating.
In some countries, unions, having failed to negotiate with
multiple employers in different sectors all at once,
resorted to - mostly failed - attempts to unilaterally
dictate to employers the employment terms of temporary,
freelance, and contract workers. This was done, for
example, by publishing fee schedules. Others negotiated
enterprise agreements with labor supply firms, thus
circumventing the employers.
Unions have always tried to sway legislation by lobbying,
making political contributions, and endorsing political
candidates - as they have this past week Gerhard Schroeder
who is up for re-election in Germany come September. The
unions' ability to mobilize the vote makes them a
formidable force even in relatively non-unionized
countries, such as the USA.
Recognizing their importance as a social institution,
government or employer-financed unions still exist even in
Western and better governed countries, such as Greece. In
the former colonies of the British Empire, trade unions
have to be approved by a registrar.
Unions act as think tanks, advocacy groups, and pressure
groups rolled into one. They try to further job protection
wherever possible - though the task is becoming
increasingly untenable. Even old-fashioned unions put the
media to good use in exerting pressure over their
recalcitrant governments.
Some scholars urge the unions to diversify and embrace
work-related issues of minorities, the disabled, gays and
lesbians, or the old. Egged on by the ILO International
Programme on the Elimination of Child Labour (IPEC),
Nepal's three main trade unions have targeted child labor
in their country. They issued a code of conduct applicable
to all their members. This is an example of the convergence
of trade unions and NGO's. Syndicates are recasting
themselves as labor non-governmental organizations.
Britain's once belligerent 6.8 million members strong
umbrella Trade Unions Congress (TUC) now talks about a
partnership with employers and labor-input in management
decision making. German-style institutionalized
consultations with employees regarding labor matters and
crucial business decisions are already enshrined in EU
directives.
The unions are trying to modernize in form as well.
In Britain, trade unions put technology to good use. The
Web sites of the TUC's member unions provide online
membership application forms, information packs, and
discussion of social and cultural issues. Jane Taylor,
Information Manager at the Communications Workers Union,
writing recently for the online research guides community,
FreePint.com, commented about the new openness of the
revamped unions:
"More and more unions are providing online access to their
internal and external documents. Some only provide access
to their journals, but others put a full range of their
documents online. These are often the most interesting as
they tend to be responses to government proposals,
briefings on changes in employment legislation and
briefings around the issues facing their members, whether
they be teachers or postal workers."
But Web sites are insufficient weapons against the twin
tsunamis of technological change and globalization. Unions
often blame the latter - and its representatives, the WTO,
the IMF, and the World Bank - of retarding workers' rights
by imposing austerity measures on crumbling countries.
The ILO Bureau for Workers' Activities (ACTRAV) organized,
last September, a get together between union activists and
representatives of international financial institutions.
The IMF's much vaunted poverty reduction strategy which
calls for consultations with all social stakeholders, trade
unions included, as a precondition for new lending, was
derided by the Rwanda representative. Quoted in the ILO's
December 2001 issue of the "World of Work", he complained:
"One day I was called to meet a representative of the
Bretton Woods Institution, but only during breakfast in a
big hotel in Kigali! I would have preferred to have him
meet the inhabitants too. He would have seen homeless
people, sick people, starving people. He would have seen
that while the financial institutions produce tons of pages
of reports, poor people continue to die by the thousands."
Others grumbled that the IMF had a strange way of
"consulting" them - they were invited to listen to a
monologue regarding the policies of the Fund and then
dismissed. The usual criticism prevailed:
"When one knows that in Africa an employee feeds five or
six people, how can the Bretton Woods Institutions speak of
a reduction of poverty by requiring the layoff of 25 per
cent of civil servants? ... And when the IMF demands that
Bulgaria reduce salaries even more, when they are already
so low, one cannot speak of a measure aiming to reduce
poverty ... In this country at war (Colombia), where
unionists are being assassinated, where workers live in
fear for their lives, the IMF has just requested the
government to show more flexibility on the labour market!
Where will that lead?"
Even the ILO joined the chorus accusing the IMF of
violating the ILO's core conventions by arguing against
collective bargaining and the provision of social
protection. The delegates also demanded a labor-related
input in all WTO deliberations.
The landscape of labor unionism is subject to tectonic
shifts. But unionism need not conform to its image of
archaic obsolescence. UNI and Ver.di are examples of what
can be achieved when a timely message is combined with
sprightly management methods and more than a modicum of
spin doctoring.
United Network International (UNI) held its first World
Congress last September in Berlin. It is the outcome of a
synergetic merger between IT, telecom, print, and media-
entertainment unions. All told, UNI boasts 800 member
unions in over 140 countries. It represents a break with
both exclusively national and rigid sectoral unions.
It is a "global union" - a cross-country, cross-sector body
of representatives. Its natural counterparts are
multinationals and IFI's. It already signed agreements with
OTE, Carrefour, and Telefonica - three global telecom
firms. Ten such umbrella organizations exist under the
auspices of the Brussels-based International Confederation
of Free Trade Unions (ICFTU).
The 3 million members strong Ver.di is the outcome of a
March 2001 merger of five German labor syndicates. It is a
services only union in a country where professionals prefer
to belong to less proletarian "associations", the modern
equivalents of medieval guilds. Its muscle, though, is a
response to the perceived threat of "transnational
capital".
Yet, at the bottom of it all is the single member, the
worker, who pays his or her dues and expects in return
protection, better pay, better work conditions, larger
benefits, and, above all, a sense of belonging and purpose.
Referring to a ceremony to commemorate 20 years of
Solidarity in Poland, a disgruntled former dissident welder
poured his heart to the ILO's "World of Work":
"There are no workers at this feast, just men in coats and
ties. Nothing remains of Solidarity except its name. It has
lost its essence, they have betrayed and forgotten us."
This betrayal, the bourgeoisification and gentrification of
trade union functionaries and erstwhile rebels, the cozying
up to the powers that be, the bribes implicit in swapping
the shop floor for the air conditioned offices and minibar-
equipped limousines, the infusion of trade unionism with
nationalistic or populist agendas - these corrupting
compromises, expediencies, amenities and tranquilizers may
constitute the real danger to the continued existence of
the labor movement.
The Labour Divide
V. Employee Benefits and Ownership
By: Dr. Sam Vaknin
Also published by United Press International (UPI)
Aligning the interests of management and shareholders in
the West by issuing stock options to the former - has
failed miserably. Options are frequently re-priced in line
with the decline in share prices, thus denuding them of
their main incentive. In other cases, fast eroding stock
options motivated managers to manipulate the price of the
underlying stock through various illegal and borderline
practices. Stock options now constitute c. 60 percent of
the pay of Fortune 500 executives.
Whitney Tilson of Tilson Capital Partners notes in "The
Motley Fool" that the hidden dilution of corporate equity
caused by stock options inflates the stated profit per
share. In the USA, stock options are not treated as a
business expense. Payment of the strike price by employees
exercising their options augments cash flow from financing
activities. Companies also get to deduct from their taxable
income the difference between the strike price of the
options and the market price of the stocks. As a result,
overall earnings figures are exaggerated, sometimes
grossly.
"The Economist" quotes studies by Bear Stearns, the Federal
Reserve, and independent economists, such as the British
anti-stock-options crusader, Andrew Smith.
These show that earnings per share may have been inflated
by as much as 9 percent in 2000, that options amounted to
c. 20 percent of the profits of big American firms (and
three quarters of the profits of dot.coms), and that the
distorted tax treatment of options overstated earnings
growth by 2.5 percent annually between 1995 and 2000.
The Federal Reserve concludes:
"... There is presently no theoretical or empirical
consensus on how stock options affect ... firm
performance."
Towers Perrin, a leading global management consultancy,
spot a trend.
"(There is) a move by employees towards placing greater
emphasis on long-term incentive plans ... (This is)
creating new international currencies in remuneration ...
(There is) a rapid, worldwide growth in stock option plans
... Regardless of the type of company, stock options are
much more widely used than performance plans, restricted
stock plans, and other long-term incentive (LTI) programs
in most countries."
Stock options are now used not only to reward employees -
but also as retention tools, building up long term loyalty
of employees to their workplace. Multinationals the world
over, in an effort to counter competitive pressures exerted
by their US adversaries in the global labour market, have
resorted to employee stock options plans (ESOP).
Vesting periods and grant terms as well as the events which
affect the conditions of ESOPs - in short, the exact
structure and design of each plan - are usually determined
by local laws and regulations as well as by the prevailing
tax regime. As opposed to popular mythology, in almost all
countries, options are granted at market price (i.e., fair
market value) and subject to certain performance criteria
("hurdles").
Eligibility is mostly automatic and determined either by
the employee's position or by his reporting level within
the organization. Management in most countries was recently
stripped of its discretionary powers to allocate options to
employees - the inevitable outcome of widespread abuses.
Ed Burmeister of Baker McKenzie delineates two interlocking
trends in the bulletin "Global Labour, Employment, and
Employee Benefits":
"Two common trends are the broad-based, worldwide option
grant, such as recently implemented at such companies as
PepsiCo, Bristol-Myers, Squibb, Merck, and Eli Lilly &
Company, and the extension of more traditional executive
stock plans or rank-and-file, payroll-based stock purchase
plans to employees of overseas subsidiaries. Employers are
also beginning to implement stock-based incentive plans
through use of offshore trusts.
These trends have led to increased scrutiny of equity-based
compensation by overseas taxing and regulatory bodies.
Certain trends, such as the relaxation of exchange and
currency controls in Europe and South America, have favored
the extension of U.S.-based equity compensation plans to
overseas employees."
Granting stock options is only one of the ways to motivate
an employee. Some companies award their workers with
stocks, rather than options, a practice known as "non-
restrictive stock bonus". Others dispense "phantom stocks"
or "simulated equity plans" - using units of measurement
and accounting whose value corresponds to the price
fluctuations of a given number of shares. Yet others allow
their employees to purchase company shares at a discount
(section 423 stock purchase plans).
David Binns, Associate Director of the Foundation for
Enterprise Development describes novel solutions to the
intricate problem of customizing a global stock options and
equity plan:
"Often the companies provide international staff with a 24-
hour loan facility whereby they can direct a designated
stock broker in the U.S. to give them a loan sufficient to
exercise their options. The broker then immediately sells
enough shares to pay off the loan and transaction fees and
deposits the remaining shares in the employee's account.
"Another approach to international equity plans is to
create an " International ESOP" in a tax-free haven. Each
of the company's international subsidiaries are given an
account within the trust and each participating employee
has an individual account with the appropriate subsidiary.
The subsidiary corporations then either purchase shares of
the parent corporation based on profitability or receive
grants of stock from the parent and those shares are
allocated to the accounts of the participating employees.
The shares are held in a trust for the employees; at
termination of service, the ESOP trustee sells the
employee's shares and makes a distribution of the proceeds
to the employee. This has the advantage of alleviating
securities registration concerns in most countries as well
as avoiding certain country regulations associated with the
ownership of shares in foreign corporations"
As far back as 1997, virtually all American, Canadian, and
British companies offered one kind of LTI plan, or another.
According to the Foundation for Enterprise Development,
employees own significant blocks of shares - aggregately
valued at more than $300-400 billion - in more than 15,000
American corporations. This amounts to 5-7 percent of the
market capitalization of American firms. The process was
facilitated by the confluence of divestiture, corporate
downsizing, and privatization of state and federal assets.
Dramatic increases have occurred elsewhere as well. In
Argentina - 40 percent of all firms offered LTI last year
(compared to 20 percent in 1997). In Belgium, the swing was
even more impressive - from 25 percent to 75 percent.
Hong Kong went from 25 percent to 50 percent. China - from
5 percent to 45 percent. Germany tripled from 20 to 60
percent. Italy jumped from 20 to half of all companies.
Spain galloped from 5 to 50 percent. Even staid Switzerland
went from 20 percent of all firms offering LTI - to 60
percent.
Stock options are gaining in popularity in central Europe
as well. More than 10 percent of the employees of S&T, a
Vienna-based IT solutions provider, owned stock options by
the end of 2000. The company operates mainly in Slovenia,
Slovakia, and the Czech Republic - but is fast expanding in
a host of other countries, including Bulgaria and Russia.
"Internet Securities" - a publisher of emerging market news
and information based in Bratislava, Bucharest, Budapest,
Prague, Sofia, and Warsaw- also rewards its employees with
stock options. The list is long and is getting longer by
the day.
Watson Wyatt, a human resources consultancy, conducted a
detailed survey among firms in CEE (central and east
Europe) in 1999. It traced the introduction of non-wage
employee benefits to the fierce competition for scarce
human capital among multinationals at the beginning of the
1990's. Later, as qualified and skilled personnel became
more abundant, employers faced the need to retain them.
Perks such as cars, death and disability insurance, medical
benefits, training, and relocation and housing loans have
become the norm in the leading EU candidates - Poland,
Hungary, Czech Republic, the Baltic States, and Slovenia.
Such habits are spreading even as far as Kazakhstan, where
most workers enjoy supplementary medical benefits. But
progress is by no means uniform. In some countries, such as
Croatia, supplemental coverage extends to less than one
quarter of the work force.
LTI programs are offered mainly by IT and telecom companies
- 63 percent of the 25 surveyed by Watson Wyatt had an ESOP
in place. But, as opposed to the practice in the West, few,
if any, firms in CEE limit eligibility to the upper
hierarchy. Still, management enjoys more sizable benefits
that non-executive employees.
Watson Wyatt note that offering enhanced retirement
benefits is fast becoming a major attraction and retention
technique. Where state provision of pensions is insecure or
dwindling - Russia, Bulgaria, Hungary, Slovenia - close to
20 percent of all workers had supplementary retirement
funds provided by their employers in 1999.
Their ranks have been since joined by other pension-
reforming countries, such as Croatia and Romania. Where
pension reform has stalled - e.g., Lithuania and the Czech
Republic - less than 1 percent of all workers enjoyed
employer retirement largesse in 1999.
There is a convergence between East and West. Privatization
in post-communist CEE countries often took the form of
management and employee buyouts (MEBO). Employees ended up
with small stakes in their firms, now owned by the
managers. This model proved popular in countries as diverse
as Croatia, Macedonia, Poland, Romania, Slovakia, and
Slovenia.
In Poland, more than 1000 small and medium enterprises were
privatized by "liquidation" - a management cum employee
lease-buyout. Leveraged ESOP's - employees purchasing
company shares over many years and on credit - played a
part in at least 150 major Hungarian privatization deals.
Russia has become the country with the largest employee-
ownership in the world. More than two thirds of the 12,000
medium and big Russian enterprises privatized after 1992
are majority owned by employees. But MEBO also
characterized privatizations in France, the UK, Nigeria,
Sri Lanka, Chile, Argentina, Pakistan, and Egypt, among
many others.
More than 4 percent of all Dutch firms - c. 2000 in all -
are partly employee-owned. More than 12,000 French
companies sold $10 billion in shares to their employees -
an average of $1000 per employee. Profit sharing schemes in
firms with less than 50 employees are compulsory in France.
More than a quarter of the workforce - some 5 million
people - are covered by 16,000 such schemes. Ten thousand
other, voluntary, plans cover 2.5 million workers.
Sixty percent of all MEBO's in the former East Germany
relied on public financing. The government of British
Columbia in Canada is equally involved through its
"Employee Share Ownership Program". Chile provided
employees with subsidized loans to purchase shares in
privatized firms in what was dubbed "labour capitalism".
Egypt encouraged the establishment of almost 150 Employee
Shareholder Associations.
Initially, MEBO resulted in gross inefficiencies as the new
owners looted their own firms and maintained an
insupportably high level of employment. The newly private
firms suffered from under-investment and poor management.
Shoddy, unwanted, products and deficient marketing led to
poor sales, massive layoffs, and labour conflicts.
Employees were quick to turn around and sell their
privatization vouchers or shares to their managers, to
speculators, or to foreign investors.
Yet, as foreign capital replaced corrupt or inapt
indigenous managers and as workers became more
sophisticated and less amenable to manipulation - employee
ownership began to bear fruit. China has learned the lesson
and has introduced a gradual transition to employee
("social") ownership of enterprises at the grassroots,
local community, level. It also strives to emulate Japan's
extensive and successful experience since the early 1960's.
Employee ownership is evolving in ways the fathers of
socialism would have approved of. Employees throughout
Asia, Africa, and Latin America - egged on by the likes of
the World Bank and regional development institutions - now
form numerous collectives and labour or producer
cooperatives. Some firms are even owned by trade unions
through their proactive pension funds.
Jacquelyn Yates describes a typical cooperative in her
essay "National Practices in Employee Ownership":
"... The employees own their firms. Typically, prospective
members work for a probationary period, must apply to join
the cooperative and are screened by a membership committee.
Labor cooperatives vary in the percentage of their
employees who are members. A common guideline is to take no
more members than the cooperative can guarantee to employ
on a full-time basis. Members make a capital contribution
in kind or in cash, sometimes through payroll withholdings.
This is the member's account value, which will be refunded
(with or without interest), at the time of separation from
the enterprise.
Governance is usually based on one vote for each member,
and the elected directors of the enterprise set overall
policy and hire top management. The main benefits of
membership are job security, participation in the
distribution of profits, and above average social benefits.
Sometimes membership means participation in enterprise
losses or making additional contributions to the reserve.
In some countries, the assets of the cooperative can never
be distributed to its members, preventing them from
realizing long-term appreciation in the cooperative's
value, but creating an incentive to continue it over many
years."
Yates reviews other practices, such as the labour banks and
the workingmen's funds. The former are financial
institutions that invest in the shares of companies that
employ their depositors. Workingmen's funds are
collectively owned portfolios of the employer's stock owned
by employees and they were first tried in Sweden.
Similarly, the UK and Ireland have legalized the employee
stock ownership trust.
Employee ownership of firms is a controversial issue with
strange bedfellows on both sides of the raging debate.
Thus, the idea has been fiercely resisted in the past by
both employers and unions. There is no social consensus
regarding the voting rights of stocks owned by employees,
their voluntary or compulsory nature, their tax treatment,
their relationship to retirement accounts, the desired
length of holding period, the role of the unions and the
state, employee representation on the board of directors
and so on.
It is ironic, though, that the ostensible triumph of
capitalism resulted in the resurgence of employee-ownership
of the means of production. It seems that to preserve
industrial peace as well as to motivate one's workers -
sharing of ownership and its attendant pecuniary benefits
is called for, on a scale which far exceeds anything dreamt
of in socialist countries.
Immigrants and the Fallacy of Labour Scarcity
By: Dr. Sam Vaknin
Also published by United Press International (UPI)
Jean-Marie Le Pen - France's dark horse presidential
contender - is clearly emotional about the issue of
immigration and, according to him, its correlates, crime
and unemployment. His logic is dodgy at best and his
paranoid xenophobia ill-disguised. But Le Pen and his ilk -
from Carinthia to Copenhagen - succeeded to force upon
European mainstream discourse topics considered hitherto
taboos. For decades, the European far right has been asking
all the right questions and proffering all the far answers.
Consider the sacred cow of immigration and its emaciated
twin, labour scarcity, or labour shortage.
Immigrants can't be choosy. They do the dirty and dangerous
menial chores spurned by the native population. At the
other extreme, highly skilled and richly educated
foreigners substitute for the dwindling, unmotivated, and
incompetent output of crumbling indigenous education
systems in the West. As sated and effete white populations
decline and age, immigrants gush forth like invigorated
blood into a sclerotic system.
According to the United Nations Population Division, the EU
would need to import 1.6 million migrant workers annually
to maintain its current level of working age population.
But it would need to absorb almost 14 million new, working
age, immigrants per year just to preserve a stable ratio of
workers to pensioners.
Similarly hysterical predictions of labour shortages and
worker scarcity abounded in each of the previous three
historic economic revolutions.
As agriculture developed and required increasingly more
advanced skills, the extended family was brutally thrust
from self-sufficiency to insufficiency. Many of its
functions - from shoemaking to education - were farmed out
to specialists. But such experts were in very short supply.
To overcome the perceived workforce deficiency, slave
labour was introduced and wars were fought to maintain
precious sources of "hands", skilled and unskilled alike.
Labour panics engulfed Britain - and later other
industrialized nations such as Germany - during the 19th
century and the beginning of the twentieth.
At first, industrialization seemed to be undermining the
livelihood of the people and the production of "real"
(read: agricultural) goods. There was fear of over-
population and colonial immigration coupled with
mercantilism was considered to be the solution.
Yet, skill shortages erupted in the metropolitan areas,
even as villages were deserted in an accelerated process of
mass urbanization and overseas migration. A nascent
education system tried to upgrade the skills of the
newcomers and to match labour supply with demand. Later,
automation usurped the place of the more expensive and
fickle laborer. But for a short while scarce labour was so
strong as to be able to unionize and dictate employment
terms to employers the world over.
The services and knowledge revolutions seemed to
demonstrate the indispensability of immigration as an
efficient market-orientated answer to shortages of skilled
labour. Foreign scientists were lured and imported to form
the backbone of the computer and Internet industries in
countries such as the USA. Desperate German politicians
cried "Kinder, not Inder" (children, not Indians) when
chancellor Schroeder allowed a miserly 20,000 foreigners to
emigrate to Germany on computer-related work visas.
Sporadic, skill-specific scarcities notwithstanding - all
previous apocalyptic Jeremiads regarding the economic
implosion of rich countries brought on by their own
demographic erosion - have proven spectacularly false.
Some prophets of doom fell prey to Malthusian fallacies.
According to these scenarios of ruination, state pension
and health obligations grow exponentially as the population
grays. The number of active taxpayers - those who
underwrite these obligations - declines as more people
retire and others migrate. At a certain point in time, the
graphs diverge, leaving in their wake disgruntled and
cheated pensioners and rebellious workers who refuse to
shoulder the inane burden much longer. The only fix is to
import taxable workers from the outside.
Other doomsayers gorge on "lumping fallacies". These
postulate that the quantities of all economic goods are
fixed and conserved. There are immutable amounts of labour
(known as the "lump of labour fallacy"), of pension
benefits, and of taxpayers who support the increasingly
insupportable and tenuous system. Thus, any deviation from
an infinitesimally fine equilibrium threatens the very
foundations of the economy.
To maintain this equilibrium, certain replacement ratios
are crucial. The ratio of active workers to pensioners, for
instance, must not fall below 2 to 1. To maintain this
ratio, many European countries (and Japan) need to import
millions of fresh tax-paying (i.e., legal) immigrants per
year.
Either way, according to these sages, immigration is both
inevitable and desirable. This squares nicely with
politically correct - yet vague - liberal ideals and so
everyone in academe is content. A conventional wisdom was
born.
Yet, both ideas are wrong. These are fallacies because
economics deals in non-deterministic and open systems. At
least nine forces countermand the gloomy prognoses
aforementioned and vitiate the alleged need for
immigration:
I. Labour Replacement
Labour is constantly being replaced by technology and
automation. Even very high skilled jobs are partially
supplanted by artificial intelligence, expert systems,
smart agents, software authoring applications, remotely
manipulated devices, and the like. The need for labour
inputs is not constant. It decreases as technological
sophistication and penetration increases. Technology also
influences the composition of the work force and the
profile of skills in demand.
As productivity grows, fewer workers produce more. American
agriculture is a fine example. Less than 3 percent of the
population are now engaged in agriculture in the USA. Yet,
they produce many times the output produced a century ago
by 30 percent of the population. Per capita the rise in
productivity is even more impressive.
II. Chaotic Behaviour
All the Malthusian and Lumping models assume that pension
and health benefits adhere to some linear function with a
few well-known, actuarial, variables. This is not so. The
actual benefits payable are very sensitive to the
assumptions and threshold conditions incorporated in the
predictive mathematical models used. Even a tiny change in
one of the assumptions can yield a huge difference in the
quantitative forecasts.
III. Incentive Structure
The doomsayers often assume a static and entropic social
and economic environment. That is rarely true, if ever.
Governments invariably influence economic outcomes by
providing incentives and disincentives and thus distorting
the "ideal" and "efficient" market. The size of
unemployment benefits influences the size of the workforce.
A higher or lower pension age coupled with specific tax
incentives or disincentives can render the most rigorous
mathematical model obsolete.
IV. Labour Force Participation
At a labour force participation rate of merely 60%
(compared to the USA's 70%) - Europe still has an enormous
reservoir of manpower to draw on. Add the unemployed -
another 8% of the workforce - to these gargantuan numbers -
and Europe has no shortage of labour to talk of. These
workers are reluctant to work because the incentive
structure is titled against low-skilled, low-pay, work. But
this is a matter of policy. It can be changed. When push
comes to shove, Europe will respond by adapting, not by
perishing, or by flooding itself with 150 million
foreigners.
V. International Trade
The role of international trade - now a pervasive
phenomenon - is oft-neglected. Trade allows rich countries
to purchase the fruits of foreign labour - without
importing the laborers themselves. Moreover, according to
economic theory, trade is preferable to immigration because
it embodies the comparative advantages of the trading
parties. These reflect local endowments.
VI. Virtual Space
Modern economies are comprised 70% of services and are
sustained by vast networks of telecommunications and
transport. Advances in computing allow to incorporate
skilled foreign workers in local economic activities - from
afar. Distributed manufacturing, virtual teams (e.g., of
designers or engineers or lawyers or medical doctors),
multinationals - are all part of this growing trend. Many
Indian programmers are employed by American firms without
ever having crossed the ocean or making it into the
immigration statistics.
VII. Punctuated Demographic Equilibria
Demographic trends are not linear. They resemble the
pattern, borrowed from evolutionary biology, and known as
"punctuated equilibrium". It is a fits and starts affair.
Baby booms follow wars or baby busts. Demographic
tendencies interact with economic realities, political
developments, and the environment.
VIII. Emergent Social Trends
Social trends are even more important than demographic
ones. Yet, because they are hard to identify, let alone
quantify, they are scarcely to be found in the models used
by the assorted Cassandras and pundits of international
development agencies. Arguably, the emergence of second and
third careers, second families, part time work, flextime,
work-from-home, telecommuting, and unisex professions have
had a more decisive effect on our economic landscape than
any single demographic shift, however pronounced.
IX. The Dismal Science
Immigration may contribute to growing mutual tolerance,
pluralism, multiculturalism, and peace. But there is no
definitive body of evidence that links it to economic
growth. It is easy to point at immigration-free periods of
unparalleled prosperity in the history of nations - or,
conversely, at recessionary times coupled with a flood of
immigrants.
So, is Le Pen right?
Only in stating the obvious: Europe can survive and thrive
without mass immigration. The EU may cope with its labour
shortages by simply increasing labour force participation.
Or it may coerce its unemployed (and women) into low-paid
and 3-d (dirty, dangerous, and difficult) jobs. Or it may
prolong working life by postponing retirement. Or it may do
all the above - or none. But surely to present immigration
as a panacea to Europe's economic ills is as grotesque a
caricature as Le Pen has ever conjured.
The Future of Work
By: Dr. Sam Vaknin
Also published by United Press International (UPI)
A US Department of Labor report published, aptly, on Labor
Day 1999, summed up the conventional wisdom regarding the
future of this all-pervasive pastime we call "work".
Agriculture will stabilize, service sector jobs will
mushroom, employment in the manufacturing sector will be
squeezed by "just in time" inventory and production systems
and by labor-intensive imports. An ageing population and
life-prolonging medicines will prop up the healthcare
sector.
Yet, the much touted growth in services may partly be a
statistical illusion. As manufacturing firms and households
contracted out - or outsourced - hitherto internal
functions, their employment shrank while boosting the job
figures of their suppliers. From claims and wage processing
to take-away restaurants and daycare centers, this shift
from self-reliance to core competencies spawned off a
thriving service sector. This trend was further enhanced by
the integration of women in the workforce.
The landscape of future work will be shaped by
technological change and globalization. The latter is
erroneously considered to be the outcome of the former. But
as "The Economist" has pointed out in a series of "School
Briefs", the world has been much more globalized one
hundred years ago, long before the Internet.
These two independent trends reinforce each other in a
virtuous cycle which will profoundly impact the future of
work. Enhanced flows of information increase market
efficiency, partly through global competition and price
transparency and partly through shorter product life
cycles.
But innovation by itself would not have had such an impact
on work patterns. Manufacturing techniques - chiefly
miniaturization - had a profound effect on the relocation
of work from factory and office to home and car. Machine
tools and office equipment well into the 1980's were too
cumbersome to install at home.
Today everyone has a telephone and many have a fax, a
mobile phone, an Internet connection, and a PC. As a
result, work-from-home and flextime are burgeoning.
Increasingly - with the advent of Internet-enabled PDA's,
laptops, beepers, and wireless access to e-mail and the Web
- so does work-on-the-move: in cars, in trains, everywhere.
Work has become ubiquitous.
This harks back to the past. Even at the end of the 19th
century - at the height of the Industrial Revolution - more
than half the population still worked from home. Farmers,
medical doctors, blacksmiths, small time retailers - lived
and slogged in combined business and domestic units. A
steady career in an organisation is a recent invention, as
William Bridges pointed out in his book "Job Shift".
Harlan Cleveland and Garry Jacobs explained the emergence
of Organisation Man in the newsletter of the World Academy
of Art and Science:
"The job -- the kind that you had, or hoped to get --
became a central fixture of life in industrial countries.
Its importance was great because it served many needs. For
managers and efficiency experts, job assignments were the
key to assembly-line manufacturing. For union organizers,
jobs protected the rights of workers. For political
reformers, standardized civil service positions were the
essence of good government. Jobs provided an identity to
immigrants and recently urbanized farm workers. They
provided a sense of security for individuals and an
organizing principle for society."
Currently, three types of work are surfacing. Old,
industrial-age, permanent, and workplace-bound jobs are
increasingly the preserve of low and medium skilled workers
- about 80 percent of the workforce in Britain. New,
itinerant, ad-hoc, home-based, technology-intensive, brand-
orientated, assignment-centered careers characterize
another tenth of the workforce. Temporary and contract work
work - mainly in services - account for the rest. It is a
trichotomous landscape which supplanted the homogeneous
labor universe of only two decades ago.
Nowadays, technologically-literate workers - highly
skilled, adaptable, well-educated, and amenable to
nontraditional work environments - are sought by employers
and rewarded. The low skilled, computer-illiterate,
uneducated, and conservative - lag behind.
In 1999, more than 13 million people in the USA alone held
multiple jobs, or part time, or contract jobs (i.e.,
freelancing). Work from home and flextime accounted for one
fifth of all other employees. Contrary to their image as
rigid labor marketplaces, self-employment and temporary
work were more prevalent in the European Union (except
Britain) than in the USA.
The Bureau of Labor statistics in the US Department of
Labor noted these demographic changes to the workforce.
Though pertaining to the USA, they are applicable, in
varying degrees, to the rest of the world, with the
exception of certain parts of Africa. America is a
harbinger of trends in employment and of changes in the
nature of work.
1. Labor force growth will slow down to an annual 0.2
percent after 2015 - compared to 2.6 percent between 1970-
1980 and 1 percent during the last decade. This is when
Baby Boomers start retiring and women's participation will
level off. Women already make almost half the labor force.
More than three quarters of all mothers are working. The
propensity to hold a job is strongest among single mothers.
2. The median age of the labor force will reach a
historically unprecedented 41 years in 2008 - compared to
35 in 1978. As middle management layers are made redundant
by technology and as start-ups mature - experienced
executives will be in great demand and short supply. Even
retirees are being recalled as advisors, or managers of
special projects. This - coupled with a dramatic increase
in functional life expectancy - may well erode the very
concept of retirement.
The Urban Institute predicted, for ABCNews, that, as
Generation X, Generation Y, and young immigrants enter the
workforce, it will be polarized between the under-25's and
the over-45's.
3. Labor force growth is strongest among immigrants and
minorities. In the USA, they will make up more than a
quarter of the total workforce in 2008. Those with higher
education and those devoid even of a high school diploma
are over-represented among recent immigrants.
4. College graduates already earn twice as much - and their
earnings are still growing in real terms - as people with a
high school diploma whose inflation-adjusted earnings are
dwindling. High school dropouts are four times as likely to
be unemployed as college graduates. These disparities are
going to be further exacerbated. On the job training allows
people to catch up.
5. Five of the ten fastest growing occupations are
computer-related and three are connected to healthcare.
Yet, contrary to hype, half of the new jobs created by 2008
will still be in traditional, labor-intensive, sectors such
as retail or trucking. One in two jobs - and two in three
new ones - are in small companies, with less than 100
workers. Even behemoths, like General Motors, now resemble
networks of small, autonomous, businesses and profit and
loss centers.
6. Much hectoring and preaching notwithstanding, the burden
of wage-related taxes and benefits in the USA is heavy, at
one half the base salary - though it has held stable at
this level since 1970.
7. The shift from defined benefit to defined contribution
retirement plans continues apace. This enhances labor
mobility as workers are able o "carry" their personal plans
with them to new employers. Still, the looming social
security crisis is far from resolved. In 1960, there were 5
workers per every beneficiary.
By 2060, there will be less than two. Moreover, close to a
third of all beneficiaries will be the relatives of retired
or deceased workers - rather than the pensioners
themselves. This is likely to create severe social tensions
between workers and beneficiaries.
8. Job tenure has decreased markedly in all age groups over
the last two decades - but only among men. Both boom and
bust contributed. Economic growth encourages job-hunting,
job hopping, and job-shopping. Recessions foster downsizing
and bankruptcies. Jobs are mainly obtained through nimble
networking. This is especially true at the higher rungs of
the income ladder.
Still, the median figure for job stability hasn't changed
much since 1983 in both the USA and the UK. Moreover, some
jobs - and employment in some states - are far more stable
than others. Transformation across all professions took
place among workers younger than 32 and workers with long
tenure.
The job stability of the former decreased markedly. By the
age of 32 they had already worked for 9 different firms,
according to figures published by "The Economist". The job
security of the latter has vanished as firms, until less
than 2 years ago, succumbed to a "youth cult" and inanely
rid themselves of precious social and professional capital.
Another phenomenon is the emergence of a Hollywood-like
star system among ultra-skilled workers - both technical
and executive. Many of them act as freelancers and get paid
with a mixture of cash and equity. They regard themselves
as a brand and engage in brand marketing on a global scale.
The more capable they are of managing organisational
change, leading teams, and identifying business
opportunities - the more rewarded they are, according to a
study by Timothy Bresnahan, published in the June 1999
issue of the "Economic Journal".
9. About 3 percent of the workforce are employed through
temporary help agencies. This is 6 times the figure in
1983. Public prejudices aside, even engineers and system
analysts work as "temps". Many people prefer Mac-jobs,
freelancing, or temporary assignments. It allows them to
preserve their independence and free lifestyle. More than
90 percent of all Americans are happily ensconced in their
jobs.
10. Work gradually encroaches on family life and leisure
time. In 1969, couples aged 25-54 toiled a combined 56
hours a week. By 2000, they were spending 67 hours at work
- or 70 hours if they were childless. This increasing
absence has probably contributed to the disintegration of
the nuclear family, the emergence of alternative family
systems, and the loosening of community ties.
Workplaces and employers - and employment laws - have as
much adapting to do as do employees.
The UK's Economic and Social research Council runs a Future
of Work Programme, launched in 1998, to investigate
"changing organisational forms and the reshaping of work".
The program studies novel work-organisation structures -
temporary work, franchise, multi-employer sites,
partnerships, supply-chain collaboration, and variants of
outsourcing, including outsourcing to the company's own
employees.
In Working Paper no. 14 published November 2000, the
authors say:
"The development of more complex organisational forms
involving cross-organisation networking, partnerships,
alliances, use of external agencies for core as well as
peripheral activities, the growth of multi-employer sites
and the blurring of public/private sector divide have
implications for both the legal and the socially
constituted nature of the employment relationship.
The notion of a clearly-defined employer-employee
relationship becomes difficult to uphold under conditions
where the employee is working in project teams or on site
beside employees from other organisations, where
responsibilities for performance or for health and safety
are not clearly defined, or involve organisations other
than the employer.
This blurring of the relationship affects not only legal
responsibilities, grievance and disciplinary issues and the
extent of transparency and equity in employment conditions,
but also the definition, constitution, and implementation
of the employment contract."
In a futuristic piece published in the last day of the
millennium, ABCNews described "corporate hotels" where one
would work with other employees from the vicinity. Up to
one third of all employees will work from home, according
to David Pearce Snyder of "The Futurist". Companies will
share "hot desks" and start-up incubators will proliferate.
But the phenomenon of self-employment in conjunction with
entrepreneurship, mostly in the framework of startups and
mainly in the services and technology sectors - is still
marginal. Contrary to contemporary myths, entrepreneurship
and innovation are largely in-house corporate phenomena -
known as "intrapreneurship".
Yet, workers did not benefit from the wealth created by
both the technology-engendered productivity rise and the
ensuing capital markets bubble. Analysts, such as Alan
Harcrow of "Workforce" magazine have long been sounding the
alarm: "The thing is, the average employee hasn’t been able
to enjoy the benefits of increased productivity. There’s no
reward."
A recent tome by Kevin Phillips - "Wealth and Democracy: A
Political History of the American Rich" - claims:
"The top 1 percent pocketed 42 percent of the stock market
gains between 1989 and 1997, while the top 10 percent of
the population took 86 percent." Most American had more
invested in their car than in their stock exchange
portfolio. To Phillips, America is an old-fashioned, though
no less pernicious for that, plutocracy.
No wonder that 40 percent of all employees hate the notion
of working - though they may like the specific jobs they
are in. Work is perceived by them as an evil necessary to
finance their vacations, hobbies, and socializing - and, by
many, as a form of exploitation. Insecure, bored, and
disgruntled workers make bad entrepreneurs. Forced self-
employment does not amount to entrepreneurship and, even in
America, the former far outweighs the latter.
There are other ominous signs. The worker of the future
will interface mainly with machines or with others through
machines - often from home. The merging of home and work,
the seamless fusion of leisure time and time on the job -
are already creating a privacy backlash and "out of the rat
race" social movements.
Admittedly, future workers are likely to be much more
autonomous than their predecessors - either by working from
home or by participating is "self-governing teams" and
"stakeholder councils". Yet, the aforementioned blurring of
boundaries between private life and working time will exact
a heavy psychological and social toll. It will impact
family life adversely and irreversibly. Job insecurity
coupled with job hopping and personal branding will
transform most elite workers into free - but anxious -
agents trapped in a process of perpetual re-education.
As globalization and technological ubiquity proceed apace,
competition will grow relentless and constant. Immigration
and remote work will render it also global. Insurance
claims processing, airline bookings, customer care, and
many other business-support services are farmed out to
India. Software development takes place in Israel and
Ireland.
Society and community will unravel in the face of these sea
changes. Social safety nets and social contracts - already
stretched beyond their foreseen limits - will crumble. Job
protection, tenure privileges, generous unemployment,
retirement, and healthcare benefits - will all vanish from
the law books and become a nostalgic memory. The
dispossessed will grow in number and in restlessness.
Wealth will further concentrate in the hands of the few -
the educated, the skilled, the adaptable - with nary a
trickle down effect.
Some scholars envision a plutocracy superimposed on a post-
industrial proletariat . Dysfunctional families and
disintegrating communities will prove inadequate in the
face of growing racial tensions and crime. Ironically, this
dystopian future may well be the inevitable outcome of this
most utopian period - the present.
END OF THE LABOR DIVIDE BY SAM VAKNIN