Is Ukraine's new Labor Code anti-labor?

Author : Vitaliy Dudin

Source : 112 Ukraine

Lawyer Vitaliy Dudin on paradoxes and erroneous premises of Ukraine's new labor legislation: fixed-term working contracts, 12 hours working day, risk of occupational injuries
10:15, 28 March 2017

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Labor reform has a chance to move forward. I doubt that it would be taken on behalf of society and the economy. The profile parliamentary committee recommended the adoption of the draft Labor Code as a whole. However, this is not an attempt to protect an employee or improve regulatory techniques. This was IMF who forced Ukraine to liberalize labor legislation. According to the last text of the memorandum, the government expresses its readiness to eliminate the toughness of current hiring regulations. Probably, they believe that this is the key impediment of economic growth.

The new Labor Code can be perceived as a signal that turning back to the old schemes is permissible. Modernization of the business would be less stimulated, and there would be no need to think over the consequences. The document allows hiring a worker for a fixed-term contract, and monitoring the rights of permanent workers by of the unions would be limited. If necessary, the working day can be extended to 12 hours. The raw stock of the economy would be preserved, and the number of inefficient small enterprises would increase.

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But the Ukrainian business would not become more competitive in comparison with the foreign players. Any individual entrepreneur would be required to have a lawyer, as the volume of the Labor Code exceeds the current code. Conscientious employers would find themselves in a difficult situation, while the other ones would be encouraged to abuse unsustainable hiring rules. The educational background of the workforce would reduce, because there would be less investing in skills. The risk of occupational injuries would become higher too. In practice, urgent workers spend less money on consumption. They postpone their plans for having a family, and it increases the chance of emigration. Are employers ready for these costs of flexible employment?

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Wishing to improve the labor legislation, we proceed from a number of erroneous premises:

1) We work not enough. The argument is based on an a great amount of holidays. But the annual norm of working hours in Ukraine is higher than in many European countries. For instance, in France in 2014, the annual norm of working hours was 1.661, in Poland - 1.943 hours, and in Ukraine - 2.002 hours. This is comparable with the figures of Greece (2.010). But employers associate productivity of the economy with the possibility of overtime work. Foreign researchers are convinced that Ukraine has some difficulties with it. But low earnings are pushing Ukrainians to work harder. Employers find a legitimate form for this: after a shift, they recruit an employee to work as a part-time worker by another employment contract, avoiding overtime payments. The task is to force the employee to perform functions productively, but not to legitimize the increase in the working day.

2) Trade unions undermine the economy. There were conducted some studies in the West, the aim of which were to undermine the legitimacy of trade unions: an attempt was made to justify that the companies covered by trade unions introduce innovations less often. In Ukraine, actually, they do not carry out such pressure on profits of the companies. In 2009, Ukraine was marked by the highest level of coverage of workers by trade unions: the figure was 96% of officially employed. The World Bank's research, carried out 10 years ago, has pointed to dual tendencies: enterprises with trade unions tend to pay more, while the Code is often ignored. The strength of trade unions, first of all, is in the number of strikes. In the revolutionary year 2013, only one strike was registered in the country. Nationwide strikes, as in the EU countries, do not threaten us at all. The most resonant cases of dismissal of trade union leaders (in the National Opera, Kyivpastrans, and the Fujikura plant) indicate that immunity is not absolute.

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3) It is impossible to dismiss an employee. Due to the weakness of trade unions and the ineffectiveness of justice, workers are not always able to resist the employer's pressure. In 2006, Ukraine was the leader among the CIS countries in terms of the number of those dismissed from their own volition. One out of every four was dismissed on this basis. Simplification of dismissal might have an effect in countries with an active trade union movement and high recompense. The liberalization of labor legislation took place in countries such as Sweden and France.

What stimulates foreign investors? The arguments prepared by US representatives in 2016 should be considered. Ukrainian salary is far behind the European level, the workforce is educated, the unions are not independent, and strikes in some sectors are punishable by prison. Not a single word is said about the rigidity of regulation! Since 2016, Ukraine has been named among the top 10 countries that are convenient for outsourcing production. Among the countries analyzed, our main advantage is a cheap labor force. Investments are restrain by other factors. By the way, for several years the World Bank has not included an assessment of labor legislation in the rating of Doing Business.

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What is the position of international institutions? According to IMF experts, during the recession, reforms, such as reducing the tax burden on wages and fiscal incentives for recruitment, are important. The reforms of employment protection legislation do not affect unemployment or productivity in the medium term. As International Labor Organization, ILO researchers have shown, there is no clear connection between reforms and the level of unemployment. According to Eurostat, in 2005 Greece was not the worst employer (64.4%), but during the liberal reforms under the pressure of the IMF it fell to a record low in 2015 (54.9%). For example, in Scandinavia employment was steadily approaching 80%.

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Salaries in Ukraine remain at the lowest in Europe, and it has become a brake on the economy. Signs of growth arose with an increase in real wages in the second half of 2016, and with the increase in the minimum wage in 2017, the number of jobs increased. Now the Cabinet of Ministers promises to refrain from revising the minimum wage and the unions will not be able to demand an increase: disloyal workers will be allowed to be dismissed for misconduct without the consent of the trade union committee.

If entrepreneurs want to take the economy to a new level, they will have to do what they have avoided before - establish a dialogue with their employees and, by distributing responsibility, move towards achieving the goals. Establishing a balance between an acceptable level for profitability and stimulating consumption is the core of sustainable development. These and many other issues would soon be discussed at the conference "Policy in the sphere of minimum wages in Ukraine", which will be held on March 30-31 in Kyiv.

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