17 - 23 January 2002
Issue No.569
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Al-Ahram Weekly Online 17 - 23 January 2002 Issue No.569 |
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Labour pains
Ragui Asaad* asks why it has taken so long to get the labour law into parliament.
A new labour law that is more compatible with a market-oriented economy has been under discussion since 1994. In tripartite negotiations involving representatives of businessmen's associations, organised labour, and the government, the broad outlines of a new law were worked out in consultation with the International Labour Office as early as 1995. The preliminary draft that was worked out at the time was based on a grand compromise between the representatives of labour and capital. Employers would be allowed to lay workers off, with compensation, and, in exchange, the ban on workers' strikes would be lifted. Although the compromise included limits on employers' ability to fire workers at will and on the conditions under which workers could strike, it did represent a major departure from the existing labour regime, which guarantees virtually absolute job protection and outlaws all strikes. In addition, the draft law allows for renewable fixed-term contracts and stipulates the creation of a national council for setting minimum wage rates.
Given that the broad outlines of the new law, described above, were worked out over six years ago, the question of why it took this long to present the proposed legislation to parliament poses itself. While it is fairly understandable why organised labour would be opposed to a law that provides greater flexibility to employers in hiring and firing, it is not readily clear why the business lobby has not been using its growing influence to push hard for its passage. To resolve this puzzle, we must delve somewhat deeper into the political economy of Egypt's labour regime. More specifically, we need to determine who gains and who loses from the perpetuation of the status quo and the relative power of the winners and losers in influencing the political process.
A useful approach to understanding the political economy of labour reform in Egypt is the so- called 'insider-outsider' model. According to this model, reforms that are in the public interest can be blocked by a coalition of insiders if they deem the reforms to be harmful to their interests. Insiders are defined as the parties that are involved in the decision-making process, irrespective of which side of the bargaining table they are on. Outsiders are those who lack the necessary access to influence the political process, despite the fact that they often greatly outnumber the insiders.
Who are the principal 'insiders' in the case of the new labour law in Egypt and why do they perceive it to be in their interests to block its passage? One obvious party is organised labour, as represented by the Egyptian Trade Union Federation. Although they claim to be broadly representative, Egyptian trade unions have historically represented the interests of public sector workers and perceive these workers, whose job security is fully guaranteed by the existing labour law, as their primary constituency. Their opposition to the new law, which potentially erodes this lifetime job security, is, therefore, somewhat predictable. What is not equally predictable is that the other component of the insiders' coalition, which is opposed to the new law's speedy passage, is made up of the large private sector employers, who are currently represented in the businessmen's associations and the politically- active business lobbies.
Why would business owners oppose a law whose principal aim is to provide them with greater flexibility in hiring and firing? The answer is that they already have all the flexibility they need despite the highly restrictive nature of the existing law. Over time, business owners, with the tacit collusion of regulators, have managed to avoid abiding by the onerous job security rules of the existing law either by not providing their workers with employment contracts or making new hires sign undated letters of resignation upon accepting a new position. According to a recent study, 82 per cent of the jobs added between 1988 and 1998 in the private non-agricultural sector in Egypt are not protected by a formal employment contract. As a result, private sector employers can, for the most part, adjust their employment levels at will.
But why would they be opposed to the law? After all, if it doesn't benefit them as much as it appears to on the surface, it surely doesn't harm them. Their lack of enthusiasm for the law is not due to the provisions of the law itself, but rather to the compromise that was necessary to get the acquiescence of the trade union federation, namely the right to strike. Given the limited de facto gains they get from the more flexible employment rules in the new law, granting workers greater freedom to organise and strike appears to be too high a price for business leaders.
What about the outsiders who are harmed by the perpetuation of the status quo? On the business side, those who benefit the most from a more transparent labour regime are the new and potential owners of privatised state-owned firms, who must deal with a fully protected workforce, as well as foreign investors who have been taking the existing law at face value and perceive it as a major impediment to investing in Egypt. Neither of these parties has much influence in the Egyptian political process, although their interests may be partially represented by certain segments of the bureaucracy. On the labour side, the losers are all the workers in the private sector who have been or will be hired without the benefit of any protection, because the existing law is not, or cannot be, enforced. Assuming that a new more flexible law would be less onerous and, therefore, more enforceable, these workers would benefit from the more limited levels of protection it provides. Although these new entrants to the labour force figure prominently in political debate, they have no direct way of influencing the political process.
Although the elements of the final compromise are not yet clear, a new labour law will eventually be passed. A new law is necessary to bring greater transparency to Egypt's labour regime because a highly restrictive, but poorly enforced, labour law gives confusing signals to trading partners and potential investors. It also creates a segmented labour market made up of some highly protected workers and a growing number of others who have no protection whatsoever. Labour reform is, therefore, necessary, not just to satisfy an external constituency, but also to achieve greater fairness at home.
* The writer is associate professor of planning and public affairs at the University of Minnesota's Humphrey Institute.
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