The 13th Month Syndrome and Other ‘Rigid’ Worker Protections
March 9th, 2010By Tarun George
We all know that labor market regulations are an important part of the decision to outsource to a foreign country. They standardize the rules for employer and employee, and make factors like labor costs much more predictable. At the same time, consensus is that excessively strict regulations do not allow the labor market to function efficiently.
The question for US companies eyeing the LATAM outsourcing industry is, when do these regulations become too rigid?
The current situation in many Latin American countries could be ‘too rigid’. Enterprise Surveys, a firm that specializes in company-level data collection in emerging markets, conducted a series of surveys done last year across 14 countries in the region to test for the effects of strict labor regulations on the workforce. The subsequent report by David Kaplan, from Enterprise Surveys, states that laws such as high legally mandated severance payments, mandatory retraining of redundant workers, and restrictions on hours worked not only prevent the labor market from operating efficiently, but also cause lower levels of workforce participation, and higher levels of unemployment. He concludes that making regulations more flexible would lead to an average net increase of 2.1% of total employment.
The irony is these laws are often union-driven requirements to protect workers, but they sometimes end up doing the opposite. “We had many employees who legitimately wanted to work two or three 12-hour shifts during the week rather than five 8-hour shifts, but because of the overtime rule we couldn’t allow that” — Maggi Williams, VP Corporate Development, KM2
