What's wrong with the National Labour Contract

First Published: 2000-07-17

Despite pressing problems of law and order and the failure of public education the Prime Minister has chosen labour market regulation as his "legacy". The proposed five labour bills intend to a.) Import and impose entirely new regulations on private enterprise and b.) Correct present legislative shortcomings. This Letter will deal with the first category and specifically the proposed minimum labour standards that the PM is negotiating with the Coalition of Private Business Organizations and the trade unions.

The minimum standards that are contained in the Minimum Wages Act and the Employment Act represent a "National Labour Contract". It affects all labour contracts and should be considered on its political and economic merit. This Letter analyzes three features.

The Minimum Wage. One of the most durable political gambits employed by "populist" politicians everywhere is the minimum wage. It is touted as a measure to improve the lot of the most needy worker. By Government decree a voracious employer is forced to pay a "fair" wage and "justice" is done. In the United States, for example, President Clinton and Senator Kennedy regularly propose increases in the minimum.

Yet the economic reality is that the minimum wage discriminates against the disadvantaged. This reality is discussed in three articles: "The Minimum Wage", "More on the Minimum" and "The Good News/Bad News of the Minimum Wages Act".

Recognizing the unfair discrimination implicit in its proposal, the Minimum Wages Act now excludes a wide range of workers. But apparently the Government knows of specific "unfair" employers and "exploited" workers and it wants the legislation and the Inspector Corps to administer justice… just as is done today with price controls and the Price Police… another example of economic meddling for political gain.

The Forty Hour Week. Today the standard workweek is 48 hours. The proposed bill will change that to 44 hours immediately and to 40 hours effective July 1, 2001. This will raise the cost of labour 6% immediately and 15% by 2001 since it requires the premium pay to accomplish what had previously been done with straight time pay.

The economic boom that was triggered by a positive program to attract foreign investment has greatly benefited the working man… full employment, rising wages, improved on-the-job training, etc. The Prime Minister and the FNM should take credit for this. But… the Prime Minister overlooks this dimension of his success. He states that business has benefited from the boom and "Now is the time for the worker to get his share of those benefits." He intends to transfer wealth from the well off to less well off.

Such efforts to transfer wealth by government edict universally have produced adverse economic consequences. They, in fact, trigger a wide range of adjustments by private enterprise that range from bankruptcy for the marginal firm to reduced profitability, investment and employment for others.

Redundancy. A redundancy occurs when an employer dismisses an employee because the employer ends, or intends to end, the business for which the employee was hired. The Employment Act requires the payment of two weeks pay for each year of employment up to 12 years or "a maximum of twenty-six weeks."

In his speech in Parliament on July 5th the PM proudly announced that this benefit was better than that contained in the latest hotel workers labour contract. A business survey done by the Institute for Economic Freedom showed that 62% of the respondents provided only one-week of redundancy pay for each year of employment.

The Bill further states that the redundancy owed "shall be a preferred debt in all cases involving bankruptcy or liquidation"… it will rank above the general creditors and the shareholders. This is likely to require the creation of a reserve… diminishing the shareholders net worth and the ability to secure financing in time of trouble.

According to the PM the redundancy provision will increase job security. Ironically the record in Western Europe is that such measures create labour market rigidities that limit the ability of business to adapt to market developments. They reduce employment and growth. In this regard read the "The Warning Label".

The 1999 International Monetary Fund Consultation stated that the Bahamas should be concerned about labour market flexibility. In Western Europe these rigidities resulted from socialist programs designed to correct the deficiencies of capitalism. They started in a fertile environment of class conflict in England and flowered under the Labour Government after World War II. The English economist John Maynard Keynes identified labour market rigidities and inadequate spending as the causes of the country-s ills in the 1920s and 30s. Labour market rigidities were left in place while government spending, and particularly deficit spending, was pushed… eventually producing inflation and currency devaluation. This is what concerns the IMF since it comes to the aid of countries in crisis. This shapes its views on labour market flexibility.

What-s wrong with the National Labour Contract? Well… it is evident from the PM-s opening remarks that his legislative program has its roots in the class conflict of the last quarter century. It is chilling to hear existing laws described as "master/servant" legislation while the proposed bills are "employer/employee." So… it is no wonder that this legislative program is, in fact, an echo of that implemented in England 50 to 75 years ago and found in reality to be deficient.

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