Danger in the proposed labour benefit

First Published: 2004-09-11

The Bahamas Employers Confederation (BECON) expressed concern yesterday over the unemployment benefit contained in the Social Security Reform Commission proposals. BECON made two comments:

* The proposed unemployment benefit should be matched by a reduction in severance payments contained in the Employment Act of December 2000, and

* The Commission should concentrate on the much needed reforms in the present National Insurance Board social security system. These problems include a future bankruptcy, excessive overhead costs, etc.

What was not clearly stated is that the proposed benefit raises the cost of labour in a country that is already badly non-competitive in the Global marketplace.

The Report on Trade Liberalization of April 2003 concluded that the country is shackled with high operating costs that put it “at a competitive disadvantage in all businesses including tourism, the mainstay of [Bahamian] prosperity over the past 50 years.” This statement was supported with financial data, trends in installed hotel capacity, comparative international hourly labour costs, etc.

Furthermore, it was endorsed by the Bahamas Hotel Association and the Bahamas Hotel Catering & Allied Workers Union among others.

The most difficult point for Bahamian legislators to grasp is that laws mandating increased benefits for workers paid by employers can have unintended economic consequences on income, job creation and unemployment.

For instance, the Employment Act of December 2001 did the following:

1. It raised the minimum wage and reduced the standard work week from 48 hours to 40 hours in two steps. This was instituted in the midst of a depression. The results were an immediate reduction in business hours and in the weekly take home pay of workers.

2. It doubled the severance benefits of hotel workers, a provision that was included in the 2003-2008 contract. Both management and labour state in their contract that technological change is vital to increased productivity. But…the Government mandate significantly increased the cost of introducing technological change.

The Bahamian Government is systematically introducing into the Bahamas the full set of labour regulations and benefits that exist in Continental Europe. The proposed unemployment benefit is just one such measure. And yet the Government is oblivious to what has happened in Europe.

For instance, Germany over the last ten years has experienced low economic growth; and unemployment has steadily increased. The wage agreements of 1992-94 doubled the level of unemployment with it being worst in East Germany. Unemployment nationwide is 10.9%…19.2% in East Germany and 8.6 % in West Germany. Long-term unemployment (unemployment lasting over 1 year) is 5 times the U. S. rate. In East Germany there is an under investment in capital; there is a low capital to labor ratio and low research and investment. Germany needs local rather than national labour agreements, reform of the dismissal provisions and a reduction in the incentive to be unemployed.

It appears that the Bahamian Government has neglected to look at the results of its past actions, is unmindful of what has happened elsewhere and remains locked into legislative objectives that will further diminish the country’s competitiveness.

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