New Paper out: Public Opinion on Labor Law in Latin America

Here is the policy summary:

Summary of “Labor Divides, Informality, and Regulation: The Public Opinion on Labor Law in Latin America”, by Sarah Berens y Achim Kemmerling forthcoming GIGA Journal of Politics in Latin America.

In this research article, Sarah Berens and I discuss an interesting feature of Latin America. On many accounts, it is the region with toughest hiring and firing laws, and, in general, with a high level of employment protection. Yet, it is also a region where a large fraction of employees works in informal or legally unprotected jobs. What are the consequences of such a two-tier system? More specifically, how do citizens in Latin America perceive employment protection legislation (EPL)? Do they know about this two-tier nature and accept it, or do we find dividing lines within the population on this matter?

Indeed, we know that in Europe for instance, there is a clear trend towards dualization, i.e. there are (at least) two-tiers in the labour market. One tier is well protected, mainly by EPL and social security systems. This covers people with formal, typical work contracts, i.e. contracts with (plus/minus) 40h a week, contracts inserted into a collective bargaining system and protected by individual and collective employment laws. Then there is another tier, a tier that mainly includes people with temporary work contracts, part-time workers, and those kind of the marginally or vulnerable self-employed. Standard forms of legal and material protection don’t apply to these people. This has created huge problems in European labour markets, if this second tier does not live up to its promise: being a stepping-stone to a formal, well-paid and stable contract. Interestingly enough, this recent European trend in many ways follows earlier trends in Latin America.

Latin American labour markets are long known for their segmented, dual structure. The clearest form of duality lies in the difference between a formal and an informal part of the labour market. Given the severity of the policy issue, it is important to know what people know and think about EPL. Since there is relatively little systematic scholarship on this issue even for Europe, let alone Latin America we use evidence from a Latinobarόmetro survey on public opinion in 18 Latin American countries. We make use of a question that asks whether people think that workers in their countries feel protected through labour law ranging from 1 ‘very protected’ to 3 ‘not at all protected’. While this question has clear limitations, it is the best available source for investigating the public sentiment or scepticism on labour laws in the region.

Figure 1 shows the aggregate response in each country for two years: 1997 and 2005. The figure highlights several issues. First, on average, Latin Americans are very skeptic about labor laws in their countries. For instance, the average response in the whole region was 3, i.e. answering with only ‘a little protected’. For 1997, the value was not much lower, hence scepticism was not much lower. In some countries – e.g. Argentina in 1997 – scepticism was even much higher and closer to ‘not at all protected’. Second, while scepticism has declined in some countries such as Argentina and Brazil, it has also clearly increased in others, Mexico for instance. There are considerable differences across countries and across time.

Descriptive_graph

Now that we know how much scepticism there is in the region, we would like to know why individuals differ in their opinion. If the dualization idea has real consequences, we should see a difference between those who are themselves directly protected by laws and those who are not. Among the latter we presume there are unemployed people and those working informally. Is there even a polarization between insiders and outsiders as some scholars have argued?

We test this logic with a battery of multivariate regression models, but in this brief we simply want to highlight some of our findings. Most importantly, we do, indeed, find that those who are either unemployed or work informally are more sceptical about labour laws than the rest of the population. More importantly, the differences are higher in countries with higher levels of EPL. In other words, the divergence or perhaps even polarization of public opinion is higher in countries where the preferential treatment for insiders is higher. Figure 2 shows this result for both types of outsiders relative to the rest of the population. The upward-sloping trend line shows that the differences between outsiders and insiders are larger at higher levels of labour rights.

IAeffects

We did many additional tests and checks to make sure that these results are not a statistical artefact. Given that our findings are robust, we argue that they have important policy implications. First, the findings illustrate a fundamental problem when protecting employees through laws: How do you ensure high coverage rates? A lot of social and employment policy in Latin America suffer from severe under-coverage, i.e. only a small part of the population has real access to the benefits of such policies. For EPL to work it needs to cover a large part of the workforce and not only those in the formal sector and with typical forms of employment.

Second, people are unhappy about the status quo. On average, people do not think that protection is sufficient.  This does not necessarily mean they would want to abolish the existing laws. Even if you an outsider, you do not necessarily want everyone else to become an outsider. You rather want to become and insider as well. In this sense, public opinion should be read as being poised against dualization, but not necessarily in favour of full deregulation.

Third, again, there is a dilemma: People are split. There are those who think the law is to the benefit of others, and those who are not. To a significant degree, these differences with differences between those who personal benefit and those who do not. Not that this is not merely a problem of vested interests: Insiders are often not even aware that the system is limited in coverage. A reform of employment protection has to start with making insiders aware of their privilege. It also needs to build inclusive coalitions, mobilizing outsiders. One of our additional findings, for instance, is that outsiders who feel unprotected often turn away from politics, i.e. they don’t vote (or may vote for radical solutions in the future). Reforming EPL is thus also important for matters of political inclusion.

 

 

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