Chapter 6 Impacts of the Liberalisation and Re-Regulation of the Labour Market in Slovakia
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Chapter 6 Impacts of the liberalisation and re-regulation of the labour market in Slovakia Brian Fabo and Mária Sedláková 1. Introduction Slovakia is a country which has been struggling with the poor performance of its labour market since the difficult transition to a market economy in the 1990s, which left the country with high structural unemployment as socialist-era heavy industry collapsed. Consequently, tackling unemployment has been a priority for all Slovak governments. Due to this need, Slovakia’s nascent labour market institutions, initially shaped in line with Western social market economies, have always been under pressure to avoid burdening employers with too much regulation of employment relations. The pressure was reinforced by the discourse of global ‘competitiveness’ through pro- market policies (Stark and Bruszt 1998: 104, 105). The outbreak of the Great Recession made this policy direction appear even more appealing to policy-makers (Clauwaert and Schömann 2013). That is because, as unemployment kept edging higher, governments came under increasingly intense pressure to come up with solutions. The cost of maintaining the status quo kept growing. At this point, it is necessary to point out that this liberal orthodoxy espoused by policy actors does not necessarily represent academic debates on the subject. The relationship between labour market regulation and employment is quite a salient and well-explored subject in economics; nonetheless it remains controversial. Stricter worker protection laws, such as the most costly dismissals, tend to decrease the tendency of companies to lay-off workers at times of low demand. They might, however, also make them more reluctant to hire when demand is high. In Slovakia, neither of these two narratives managed to establish itself as clearly dominant. The pressure for liberalisation in the country was countered by the general, although not uninterrupted, dominance of the political left-wing from the mid-2000s. One important reason behind this hegemony was the general tiredness of Slovaks with the precariousness and powerlessness caused by the pro-market policies of the radical reformist government of the early 2000s (Fabo 2015). A result of the tensions between the external pressure for liberalisation and the popular desire for security was that the country saw rapid back-and-forth changes in the legal environment. These shifts happened chiefly through rapid contradictory amendments to the Labour Act passed by parliament according to the ideological preferences of successive governments. In this chapter, we are exploring these changes in the context of the logic behind their introduction. In a sense, our aim is to bring a degree of clarity Myths of employment deregulation: how it neither creates jobs nor reduces labour market segmentation 123 Brian Fabo and Mária Sedláková to a heavily ideological debate, often driven to a much higher degree by the ideological inclinations of the policy actors than by the facts. We start the chapter with a short description of labour market policies from when Slovakia became independent. We focus in detail on the changes made during the period of economic crisis. We then analyse the impact of legislative changes on the labour market. We aim to show the effects of employment protection reforms on the level and structure of employment in Slovakia. Subsequently, the chapter presents the view of the social partners and their role in the frequent policy changes. We particularly scrutinise employers’ arguments which have been (mostly) in favour of de-regulation against the empirical evidence of the labour market. The last part draws some conclusions. 2. Labour market policy development since independence 2.1 Historical context The concept of work flexibility is a relatively recent one in the Slovak environment due to the legacy of state socialism, where state-run organisations had a monopoly on employment which was, in turn, defined by law as a duty. Consequently, employment regulation was much more rigid than in the market system and the labour code (Law 65/1965) regulated every aspect of employment with great detail with the aim ‘to ensure progress and prosperity for all.’ In the late 1980s, however, the regime started to experiment with liberalisation of the rigid economic structure in the country under the influence of the Soviet-inspired perestroika movement. Labour code reform No. 188/1988 was the first that envisioned a more economically-driven approach to the hiring and firing of employees and which legislated a notice period of two months to lessen the impact of changes on workers. The regime’s reform effort came to an abrupt end in 1989, when the regime collapsed to the Velvet Revolution, to a large degree thanks to a general strike of workers organised to support the demands of the Revolution. Afterwards, there was a high level of goodwill towards workers, leading to the establishment of Western-style tripartism and employment legislative protection (Fabo 2015). Government direction 312/1990 established, for example, a minimum severance payment of five months for laid-off workers. At the same time, the Revolution also unleashed the transformation of the economy, in which unemployment quickly spiralled to heights unprecedented since the end of World War II. The government reacted to poor labour market performance by decreasing the generosity of worker protection and reduced severance pay to two monthly wages through Law 195/1991. From the outbreak of the 21st century, the labour law debate became heavily politicised. In 2001, the government, at the time including left-wing parties, strengthened the protection of workers through a new Labour Code 311/2001, which increased the notice period for organisational discharges from two to three months. In 2003, the tide turned as a right-wing government proceeded with liberalisation of the Labour Code through Amendment 210/2003 as part of its ambitious ‘reformist’ agenda in spite of 124 Myths of employment deregulation: how it neither creates jobs nor reduces labour market segmentation Impacts of the liberalisation and re-regulation of the labour market in Slovakia opposition from trade unions united in the Confederation of Trade Unions in Slovakia (Konfederácia odborových zväzov, KOZ SR). This Amendment made a notice period obligatory only for employers unwilling to make severance payments. More importantly, this legislative act followed the recommendations of the OECD to liberalise the labour market and address the rigidities in hiring and firing that were portrayed as a threat to employment creation in the country (OECD 2002: 102). Nevertheless, when it comes to workers on standard contracts, the situation for them after the changes was still largely comparable to that of their peers in most surrounding countries (Figure 1). At the same time, it created a particularly precarious market for workers on temporary contracts and especially for workers with contracts of agreement for work performed outside an employment relationship, i.e. so-called ‘work agreements’ (dohody o prácach vykonávaných mimo pracovného pomeru; see Figure 7). Employees with work agreements (which are incorporated in the Labour Code in Slovakia as a more flexible alternative to a standard employment contract) did not enjoy the same level of protection as regular employees. Employers were not obliged to pay social security contributions, which left employees disentitled to sick leave, pension contributions, unemployment benefits, paid leave and meals allowances from the employer. The result was that work agreements were often abused as a replacement for standard employment contracts (Eurofund 2015). In the 2004-2007 period, Slovakia had the most lenient temporary employment laws in the region when it comes to temporary contracts (Figure 2). Figure 1 Strictness of employment protection index for permanent contracts 1993-2013 3.5 3 2.5 2 1.5 1 0.5 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Czechia Hungary Poland Slovakia Note: Vertical lines represent changes in Slovak governments: the two nationalist authoritarian governments led by Mr. Mečiar in 1994- 1998; the wide right-left coalition of Mr. Dzurinda from 1998-2002; the centre-right government of Mr. Dzurinda in 2002-2006; the left-leaning government of the social democratic party SMER led by Mr. Fico in 2006-2010; the short period of centre-right government of Mrs. Radičová in 2010-2012; followed by Mr. Fico’s social democrats, in power during 2012-2016. Source: OECD, own visualisation Myths of employment deregulation: how it neither creates jobs nor reduces labour market segmentation 125 Brian Fabo and Mária Sedláková Figure 2 Strictness of employment protection index for temporary contracts 1993-2013 2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Czechia Hungary Poland Slovakia Note: Vertical lines represent the terms of mandate of individual governments, as explained in Figure 1 Source: OECD, own visualisation Following labour market liberalisation, as well as other liberalising reforms particularly in the area of taxation and the welfare state, a period of sustained very fast growth commenced in Slovakia, driven by foreign direct investment (FDI). Indeed, at the onset of the Great Recession, Slovakia was among the fastest growing countries in the world, with year-on-year GDP growth of 10.7 per cent. Slovak policy-makers in particular were very quick to dub the emergence of the ‘Tiger of the Tatra Mountains’ as clear proof of the success of liberal policies (Bohle and Greskovits 2012: 170). Sceptics, meanwhile, argued that much of the growth was simply a delayed recovery from the economic shock that struck the country hard as a result of the fall of communism and 1990s authoritarian governments which had scared away FDI at a time when neighbouring countries were a major destination for global capital.