The Sunday Mail
The brouhaha triggered by the Supreme Court ruling affirming employers’ legal right to terminate contracts of employment on notice without offering packages resulted in intensive discourses interrogating how labour should be ideally protected in the grand scheme of things.
While we seek to grow the economy, which has been in recession since 2011, these past few days — following the Supreme Court ruling — saw employers shedding thousands of jobs in a firing frenzy that has sent shivers down the spines of different actors.
Interestingly and coincidentally, all this is happening at a time when an International Labour Organisation flagship report, published last week, came up with remarkable deductions.
Titled “World Employment Social Outlook: The Changing nature of jobs”, the report says: “Poorly designed changes that weaken employment protection legislation are likely to be counter-productive for employment in both the short and the long runs.”
In light of the above, Government has also come out saying that it shall, in the shortest possible time, amend the relevant provisions of the Labour Act “to restore equilibrium in the market”.
The labour market, I presume.
You see, labour market equilibrium is that situation where the demand for labour is equal to the supply of potential employees. At this level, there is neither a labour deficit nor excess.
But we know very well that no amount of amendments to the Labour Act, acting in solitude, will bring about labour market equilibrium.
It is a primary function of other factors.
What seems to be escaping the imaginations of many folks is that labour, as is the case with any other factor of production, has derived demand.
What this basically means is that the demand for labour occurs as a result of the demand for another product.
If, for instance, the demand for locally-produced clothes rises, the demand for tailors will also rise.
And the very opposite is true.
It is bad economics to keep the same mix of factors of production when the demand for goods they make is falling, as production would be falling.
It will result in unnecessary and incommensurate costs being incurred as excess factors of production would be employed.
Requiring employers to keep the same amount of employees they had in 2011, when average industrial capacity utilisation was 57 percent, for instance, would, therefore, be unreasonable, generally speaking, as capacity utilisation has since fallen to as low as 36 percent.
Labour, therefore, needs to be properly scaled in line with current production to ensure optimum business viability.
Employers in the private sector are driven by self-interest and the desire to make profit.
Once they start to be made to incur costs they can otherwise avoid, they might be compelled to alter their investment decisions — pack and go somewhere they can escape such costs!
The mistake many seem to be making is to erroneously think that employers always want to fire their workers each time they get an opportunity.
And that is not correct.
Labour is actually an active factor of production and, without it, no production takes place.
Workers are hired by employers in the first place. And hiring is still happening. The vacancies appearing in various classifieds sections of the different local newspapers are proof of it.
Some employees have actually been given raises recently, some have been given free holidays abroad and other goodies.
No sane employer would wish to fire an employee, knowing fully well that it will compromise his production.
But if production falls due to low demand, the employer is left with no option. They have to make some tough decisions to survive.
Labour might have to be cut down, just like what will happen to every other factor of production.
When a company is trying to cut down on factors of production in line with falling capacity to ensure survival, it must be allowed to do so at the least possible cost.
Otherwise the entire company will go bust and all the factors of production, labour included, will be rendered idle.
However, that does not mean that employees should be left at the mercy of employers by being forced to walk empty-handed. We must carefully strike a balance between the need to safeguard the welfare of the employees affected and to ensure the survival of the company in question.
Should we burden the company in survival mode with high retrenchment packages that will leave it bankrupt?
What really should we do?
An ideal short-term measure would be to issue the workers whose employment would have been terminated with guaranteed job termination bonds, which they can benefit from when the company improves its performance.
Business cycles are a fact of life and we know that recessions, stagnations and booms are the three seasons that are experienced by every economy.
The tree of a company that you find without leaves in one season will be budding and flourishing in another.
The trick lies in ensuring a company gets all the help it can to get through the difficulties of a season.
A long-term solution would be to create an unemployment insurance fund through which both employer and employee contribute.
If an employee’s job is terminated, they benefit from the fund for a certain period of time.
That way, they won’t even feel that they are unemployed.
And there will be no brouhaha to talk about.
The envisaged Labour Act amendment must be inspired by the business philosophy of the day.
Government’s decision to freeze recruitment in the public service since 2012, for instance, was inspired the prevailing economic conditions where Government realised that not doing so will result in unsustainable fiscal deficits.
Which is why the same wisdom should inspire the envisaged amendment seeking to alter the contemporary goings-on in the private sector, the very sector that has been doing a lot in trying to employ at a time when Government (the biggest employer) has been failing to.
What must be noted is that making it difficult to fire employees is tantamount to making it difficult to hire as well.
Once employers realise that firing is difficult, they will not hire new employees on permanent basis.
And that has been happening.
You see, back in the golden 90s, the proportion of permanent employees to the total number of employees was very high.
It has changed now.
What we see now is a situation whereby virtually all new job positions have tilted the balance, with contractors stealing the thunder.
We know these do not get benefits that permanent employees get, such as leave and medical aid.
These realities should inspire the labour law amendment.
When employers are faced with a situation whereby they can rationalise every other factor of production in line with falling production, except the labour force, it leaves the firm with a huge wage bill that does not commensurate with production.
The flipside is almost like the company has “employed” more workers to work where capacity has fallen.
And the marginal product of labour (the change in output that results from “employing” an “added” unit of labour), in that scenario, will be diminishing.
As I have alluded to earlier, labour has a derived demand.
If we want to sustainably increase the demand for jobs, we have to pragmatically work on increasing the demand for goods and services produced in the various economic sectors.
This requires the intervention of various policies.
And the Mid-Term Fiscal Policy Review is one of the key policies that will foster enhanced demand for locally-produced goods and services.
The Supreme Court ruling should provoke Government to vigorously continue to work on improving our policies, especially those that have a bearing on foreign investment and international relations.
Having said this, now I can get on my horse; got a long ride back to the country.
