It’s quite amazing: one of the biggest economic reforms of the last 14 years is to be unveiled today or tomorrow and, even now, the public has no real idea what it will say.
Chávez’s long delayed reform the Organic Labor Law will have immediate, massive consequences for the lives of most Venezuelan families and could well bankrupt, in one fell swoop, much of what remains of the private sector. But since he’s using his special Enabling Law powers to legislate by decree, all we know about the actual content of the reform comes through leaked drafts of things that may or may not be in the new law and, of course, @chavezcandanga.
Front and center here is the one more-or-less functioning aspect of Venezuela’s social safety net for formally employed workers: the severance pay system. Transitory clause 4, paragraph 3 of the 1999 constitution mandates a return to Venezuela’s ante-diluvian “retroactive” Severance Pay system. It’s bad news.
It takes a determined decision to be obtuse about it to not understand why retroactive severance pay amounts to balance sheet kryptonite: the system, as its name implies, works backwards, from a worker’s final salary, using it as the basis for the severance pay calculation. But since employers can neither predict nor control the pay rises the national government periodically declares, the system mandates a kind of ticking-time-bomb into each company’s balance sheet: a major unfunded labor liability that employers can only very roughly prepare for. The disincentives to hiring inherent in this set-up should be obvious.
In fact, if it’s taken 13 years to make good on that 1999 promise, the reason is simple: returning to prestaciones retroactivas would create as much havoc in public sector labor costs as in private ones. Which is why the reform has been delayed again and again: even chavistas shudder at the scale of the mess they’re about to create in public sector finances.
The specifics of how they intend to return to retroactivity are the major line-item businesses will be looking at when the new labor law is unveiled – depending on the cleverness of the reform, it could be either burdensome or catastrophic. But that’s just one corner of the sprawling legislative wrecking ball that’s about to hit: the new LOT could bring any number of other surprises, from a shortened workday to new maternity benefits (already leaked) to extra-holidays (heavily trailed) to who knows what else. A tsunami of new costs, in other words, are in the works…
You’d think they’d at least discuss this stuff ahead of time. But no…
I could totally see retroactive severance after an October 7 loss. But right now? Makes no sense – in political terms. (It never made sense in economic terms, but it’s not like that argument ever really carried any weight.)
The brain is compromised:
“Chávez insistió en el recálculo de las prestaciones con base al último salario y a los años de servicio, además del doblete a la hora de los despidos injustificados. “Son derechos de los trabajadores y de sus familias. Estoy seguro que con estas conquistas, con estos beneficios, ustedes van a poner más en la producción nacional, en la construcción del socialismo”, manifestó.”
One question: one thing I’m reading is that the week would be now 40. How much was it then and when did it change??
When I left I was working from 8 to 12 and from 2 to 6, those were already 40 hours.
In any case, if this law doesn’t make illegal requesting a specific gender, age range or a photo when hiring, then not much progress would be made.
“…is that the week would be now 40 hours.” I meant.
Now its 44, in the 1961 Constitution it was 48.
But it was reduced to 44 by the 1990 LOT if I’m not mistaken.
I meant I was already working 40 hours when I left Venezuela, so was my husband and so were my colleagues.
Was it different for laborers than for professionals? I’m confused.
it’s a maximum, not an obligation
Thanks, that explains.
Pan y Circo… this will only mean more contracted employees with no benefits at all. Get ready for massive layoffs and rehiring programs (under new conditions) in the near future.
“Get ready for massive layoffs”
Nope, you are forgetting the “inamovilidad Laboral” which unless I’m mistaken is still in force.
Unless, of course, there is some sort of transitory provision which eases the inamovildad off over time.
Forget this law, it’s part of Chavez’s,or dare i say, PSUV’s campaign for this year’s election. Chavez is backed by the ignorant,the uneducated and the lazy, whats this law tell’s people is:
“You will work less and get pregnant for a year off, vote for me now”
Metodex: in Canada the parental leave is a year and it could be taken for either parent, even in adoption cases.
http://www.employment.alberta.ca/SFW/1473.html
The difference is that the salary s paid by the government, that is of course, if you have paid your social insurance fees. Cotizado al seguro social pues.
Yeah that’s the only small, diminute detail.
What I find unfair from your last comment is that you’re calling people on maternal leave “lazy”.
Regardless of who is paying for the leave, an extended paternal leave is a good thing.
I take you never had to leave your 3 month old baby in a daycare, right?
When I had my first baby, maternity leave was 3 months, including pre and post natal, so we expecting mothers all tried to work until the very last day so the post would last 3 months. In my particular case when it was time to go back to work, I didn’t have the courage to leave my newborn with a stranger so I quit my job, but most of working moms can’t afford that.
im not calling them lazy,you got it all wrong. Venezuelans are lazy. I will stop this senseless discussion and urge you to read again my comment.
-1 to your comment Carolina.And i still remember the peaunut butter arepa.
Not peanut butter, that was not me! It was strawberry jam. :-)
Regarding the “venezuelans are lazy”…we have discussed this in here before so I’m not going to go back again there. I don’t think is true. The majority of people work from dawn to sunset with at least 3 hours of commuting time.
Bottom line chico: I’m in favour of a long paternal leave paid by employement insurance.
Not paternal, parental!
Mmmm, my dad has worked as accountant for years in a big company, and talking to him about it he told me that in fact, IVSS has to pay you during those months, I think the company only puts in the 1st one
This is priceless: http://www.elchiguirebipolar.net/30-04-2012/contenido-de-la-lot-se-le-aparece-a-tres-ninos-en-apure/
We went through the maternity leave with an employee 3 years ago.
The way it works, if you are up to date with Seguros Sociales, the employee files a claim with SS and they are responsible to pay her – not the company. The problem is then what does the company do? You can’t fire her so when she comes back you are obligated to keep her on.
In the meantime you have had to hire another employee to replace her. You can’t fire that person either under current legislation. It’s a Catch 22. Not only that you accumulate prestaciones, vacations, utilidades, SS, Banavih, etc. for both employees.
It’s just such a stupid system.
By the way our employee has still not been paid her maternity leave. The funny thing is we offered her Bs.3.500 when we learned she was pregnant if she would just leave & go have her baby. We also offered her her job back when she wanted to come back. She turned us down & got nothing. The story of Chavismo – promises, promises.
Can you imagine how many thousands of millions of Bs. SS (the government) owes people?
This part of the new law is all smoke & mirrors.
I am trying to think what would be a better way to do the maternity leave and I can’t come up with one. The whole purpose is that a woman can have a child and not be concerned about her career and still attend her newborn. To me this is completely justified.
I understand that this can be complicated in a small operation since the work load will be harder to distribute, but it is something necessary as a society.
BTW… there are some places that will go as far as to say that the father also deserves a leave.
How about sharing the leave between the two of them? Fist six months with mom while she’s breastfeeding and six months with dad so she doesn’t lose her career. That’s only fair.
…first…
According to the Ley para Proteccion de las Familias, la Maternidad
y la Paternidad the father has two weeks of paternity leave.
That’s a good thing.
I’m watching a random show here where a gay couple are planning to adopt a baby. How a “maternity” leave would work in that case?
It has to be called parental leave and give the couple the option of who’s taking it. Im many cases, the mom makes more money than the dad, so it makes sense she goes back to work and dad stayes at home, right?
Venezuela has a long way to go.
That’s a really interesting question. In Venezuela, the TSJ actually held in one decision that the equal protection clause of the Constitution forbade discrimination on the basis of sexual orientation, but at the same time it said that there was not a right to gay marriage in the Constitution. And gay couples are not allowed to adopt in Venezuela. Sadly, as we continue to debate if we should have basic separation of powers and free speech, this type of debates will remain in the background.
Rodrigo Linares, I think the problem resides in attributing meaning and or relationship status to employment. In theory, money is exchanged for a good or service. If a person stops providing the good or service, for any reason, then there is truly no reason for an employer to keep paying them. Accidents, maternities, illnesses, etc. should be more for insurance companies than for employers. Of course, this brings us to the ugly side of capitalism which can be beautified if joblessness did not imply sinking into poverty. If there were only a way to guarantee that no one would be destitute without a job, and that everyone could afford the basic costs of life together with sufficient insurance, etc…
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Torres,
We agree. I am not saying that the employer should take the economical burden, the state or some other, but the employer must guarantee its female employees that there will be a job for them after they have fulfilled their newborn’s needs. A few months’s wages are important, but not as much as having a total breakdown in you career.
You can’t fire that person either under current legislation. It’s a Catch 22.
The very best catch of all. But don’t worry so much, you have a piece of the action and it will all work out in the end. Watch out for the prop wash.
Could you have hired someone under a term contract form?
They are only valid for 3 months as far as I understand. After 3 months you either have to hire them full time or let them go. Once they pass 3 months they are employees.
One of the things discussed was to do away completely with this 3 month trial period however I haven’t seen it mentioned further. That would really hurt the large hotels that tend to have short periods of high occupation.
We are currently down to 1 employee who has been with us off & on for 24 years.
This new law will prevent us from taking on any new help unless there is a huge change in the tourism economy.
I understand.
the tourism won’t improve while the insecurity levels where they are. people prefer to spend the same amount of money (or less) in a safe resort, specially north american tourists.
Even thou that’s true, you have to keep in mind that only applies for traditional type of tourism. Venezuela has always been a niche for backpackers wiling to pay to experience the thrill of Adventure-tourism or Eco-tourism and insecurity being all that it is, wont affect it much. Now, the high cost of life and constant inflation is another matter…
I don’t know anything more than anyone else, but this labor law kind of reminds me of the movie “Titanic” when the string quartet is playing on the deck while the ship is sinking.
six of this, and half a dozen of the other…
This is just a very clever way to apretar la tuerca again.
It introduces noise ofr weeks to come, it plays to the un educated fanbase, it hits the remaining private patronos still not under water, and most importanly, allows for the new goverment to be seriously compomised in its ability to deal with revoutionary sindicatos that will push for thises reforms.
For 13 years the contratos colectivos have beeen on hold, but come Capriles, it will be a pivotal component of the planned challenges to governance….( con chavez se vivia mejor!)
I find really disturbing to read comments from some people who think unemployment benefits and paid maternity leaves are fundamentally wrong. Were it for them, everyone would only be paid 11½ months a year —an unpaid two week vacation is included— and forget about having a child or severance pay or pay for extra hours. And those days when people don’t get to work due to sickness would be discounted from their monthly salary immediately. You are the real abusers of the system.
I think there’ll be plenty to talk about when the new Labor Law is published in the Official Gazette, but as I said to a chavista friend, I see no actual difference between this law and the Carmona decree in the way they were written.
Gabriel, I disagree with your assumption. I think there is a better system that does not include an employer having to take care of people’s personal needs.
I also think you presume too much good in the system you support; consider that as you make employers take on more and more of people’s personal troubles the demand for robotics increases, so increased worker demands will be tantamount to shots in their own feet. Are we going to make hiring robots illegal? And outsourcing?
The slippery slope is clear: we need a system in which being jobless is acceptable for all parties, or unemployment, inequality, and poverty problems will simply worsen.
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Congratulations! You, sir, have roundly thrashed that dastardly straw-man!
I said nothing about a system I support. I said everything about what I reject, which is breaking the Venezuelan Labor Law.
Do I think our perks system is compatible with economic and social progress? My answer is no, because the trait is the continually increased demands on a populist model established in the 1940s for desperately trying to fill both the lack of a functioning social security system and the loss of purchasing power. And those demands are in fact protected by law to go in a single direction: up. Transferring them out of the employer’s scope is the real challenge.
NOW I understand!
“By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security but [also] at confidence in the equity of the existing distribution of wealth.”
Obligatory reading for anyone who thought that Keynes was for the kinds of inflationary and half-socialist shenanigans some call “Keynesian”, and to anyone wanting to know where such politics lead:
http://www.pbs.org/wgbh/commandingheights/shared/minitext/ess_inflation.html
Damn, does he expose the madness going on now, 80 years ago…
What was never a “right” of Venezuelan workers or any Venezuelan was to be paid in a currency that retained its value for any reasonable period of time. That, keeping your own money and getting out of poverty, was never a “right”. Also, contracting and holding debt and having the amount mean something was never a “right”. All thanks to continuous and high inflation, the best way of thrashing all property rights that must involve the coinage of the country, meaning almost all of them.
Retroactive payments mean that laboral debt is made complete nonsense, and potentially explosive at that (thanks Quico for pointing this out). The already impoverished worker is promised a lot of money from employers who might not have that kind of money, as everybody has had to deal with mad hyperinflation and economic and legal uncertainty.
“The incentivized to hiring inherent in this set-up should be obvious.”
Actually hiring is promoted. It’s maintaining the employees and promoting them and raising salaries that is disincentivized.
“The disincentives to hiring inherent in this set-up should be obvious.”
Sorry, that’s the correct quote I was referring to.
Hey, sorry to bother you guys, but would any of you mind to give an “for dummies” explanation about this issue. Seriously, I don’t reading a lot I just don’t understand all the terminology. Any ways, I would sincerely appreciate it.
Thanks in advanced!
For dummies:
1-The Venezuelan employment security system is really screwed up, the only part of it that sort of kind of protects workers in case of problems is the Statutory Severance Pay System.
2-The system used to say when you get fired, the boss has to pay you 30-days-worth-of-your-final-salary for every year of service you put in.
3-In 1997 that system got changed, to say the employer had to contribute 60-days-of-your-current-salary each year to a trust fund, and when you lose your job you get the trust fund handed to you.
4-The left – including most current chavistas – railed against the 1997 reform, calling it a neoliberal plot to screw over the workers.
5-In 1999, chavismo put a pledge to return to the old system into the constitution itself.
6-This week, chavismo tacitly admitted that the 60-days-of-current-salary-each-year system is better for workers than the pre 1997 system, and approved a reform that mostly leaves the post 1997 system in place in most cases.
Got it, thanks a lot! Now what the deal with the 75% in advanced + the 30 days ? Would you mind explaining that to me?
I can’t explain it cuz I still don’t quite understand it – the courts will have to clear it up.
Ok. I shall be looking forward for that explanation… Now one last question and I promise to leave you alone (for now) In your professional opinion what are the good and the bad sides of the LOT ? And how will affect the private sector and the regular Joe on the street?
No idea, I haven’t read the whole thing. My seat-of-the-pants impression: Venezuela went into this with what was already the world’s least flexible labor market. This new law maybe makes the labor market a little bit more inflexible still, but hell, we were already an extreme case before, so…