World Bank Labor Market Policy
A Brief Report
By Anita Yang
A Brief Report
By Anita Yang
This report will focus on the World Bank labor market policy. It will list and define the four core labor standards and the significance of each standard in relation to the labor market. In particular, the focus will be on the practices and policies of the World Bank and the impacts it has on the labor market. It will also discuss the role of governments, private sectors, and trade unions and their impact on workers. It is important to note that the World Bank’s primary mandate is to aid in the development of countries and, thus, the focus of this report will be on developing nations.
Past World Bank policies have often been unsuccessful because of failure to take into account the negative social impact and dislocation of resources as a result of privatization and liberalization schemes. Although past development policies of the World Bank may have exacerbated poverty conditions and may have negatively impacted workers, recent trends indicate that the World Bank has been shifting to a more pragmatic position, taking into consideration the social and economic impacts of its policies with a new emphasis on the rights of workers. This shift is a positive one. It is important for any country to protect its primary assets – its workers. Only when the rights of workers are guaranteed can conditions of equality, social justice and the alleviation of poverty be achieved.
Intervention Needed in Labor Markets
Why is public intervention needed in labor markets? What role do the World, Bank, governments, NGOS, trade unions, and workers play in implementing labor standards and regulations? And what challenges do these decision makers face? These are very important questions that need to be answered – and soon. Globalization – the free flow of information, peoples and communication – has restricted the ability of national governments to protect their most important asset, the workers. In particular, developing countries are feeling the negative pressure of urban labor markets with large inflows of young workers looking for employment. The current migration of workers in developing countries has concerned both the North and South. In a recent World Bank report, statistics indicate that, of the almost 300 million of the new jobs required, sixty-five percent will be in Asia, with another hundred million in Africa and about fifty million in Latin America. Only less than four percent will be in the developed countries.1 With the large majority of new jobs being created in developing countries and the lack of infrastructure and protection available for workers, it is vital that problems in the labor markets are addressed.
The global economy has had several effects on developing countries. First, it has limited and constrained the ability of national governments to use traditional domestic instruments. Second, global production has pushed countries to react competitively in a “race to the bottom”. Third, low-skilled workers in large informal sectors do not have insurance against labor market risks associated, for example, with unemployment, disability, or old age. In developing countries, only a small minority of workers is unionized and this group tends to be concentrated in the public sector. And this power of collective bargaining is decreasing as union memberships were falling throughout the late 1980s and 1990s.2
Yet, it would be wrong to only attribute globalization as the cause of the lack of labor standards found in developing countries. Rather, labor conditions are also a reflection of low levels of human and physical capital, lack of access to financial institutions, and pressure of population on physical resources. Thus, poor labor conditions are linked to the issue of poverty, low income and low living standards.2 The poorest countries are those that are least integrated into the global markets. They share many common characteristics including low levels of development of civil society, weak rule of law, poor economic institutions, high levels of corruption and poor educational systems. Often national policies have inadequately dealt with problems attributed to the impacts mentioned. Governments are facing challenges, as intractable poverty and persistently high unemployment rates have resulted in the social exclusion among low skilled workers who are often found in the informal sector.3
Are economic growth and the rights of workers compatible in the global labor market? Yes. Now more than ever do the rights of workers need to be recognized and upheld. It is in the interest of the world and it is in the interest of individuals to ensure that the benefits derived from globalization flow down to even the poorest person. Millions of the world’s population live on $1 a day, an indication that the fruits of trade are not benefiting a large majority of the world population. Globalization characterized by neo-liberalism and the “Washington Consensus” dictates that developing countries must open their economies to free trade and must privatize and deregulate to ensure open competition in order to attract foreign investment. Unfortunately, there is no one-size-fits-all remedy to the problem of economic stagnation and poverty in developing countries. Workers in the developing countries are finding their rights compromised by a “race to the bottom”.
For most developing countries, labor standards are often not a priority; economic growth is. The conundrum is that often policies pursued by national countries that are designed to attract investment hurt local workers. In an attempt to attract multinational investment, countries often rush to deregulate, lowering wages and abandoning any labor protection they might have offered in the past. But this strategy has not attracted investment or created jobs. Economic growth and the rights of workers is not a zero-sum game. There are alternatives to the “Washington Consensus”.
ILO DECLARATION
The alternative is for governments and international institutions to recognize that workers are entitled to basic human rights and labor standards. If the eradication of poverty is to occur, the priority of protecting workers and upholding social goods must be maintained. In the preamble of the ILO Constitution, it states that the need for universal adoption of labor standards is imperative and the “failure of any nation to adopt conditions of labor is an obstacle in the way of other nations which desire to improve the conditions in their own countries.”
The International Labor Organization, a tripartite body with representatives of employers, workers and governments from 175 countries, works actively with governments, NGOs, trade unions and international institutions like the World Bank to promote labor rights and decent working conditions. Formed in 1919, the ILO is a UN specialized agency which establishes and monitors implementation of conventions and in addition to recommendations on workplace practices, the ILO provides technical assistance to member countries on employment policy, labor statistics, social protection systems and other social policy issues.
The ILO has identified four core labor standards that have been internationally recognized as basic rights and principles at work: the elimination of all forms of forced or compulsory labor, effective abolition of child labor, equal opportunity and non-discrimination in employment, freedom of association, and the right to collective bargaining. Core labor standards provide the foundation for the 1998 Declaration on the Fundamental Principles and Rights at Work by the International Labour Organization. Although there are many types of labor standards, these basic rights are recognized as applicable to every country regardless of its level of economic development. It has been articulated in declarations such as the Universal Declaration of Human Rights in 1948 and the Convention on the Rights of the Child in 1989 and most recently traced to the Declaration of the 1995 Copenhagen Summit on Social Development.
The four core labor standards have incredible relevance today. Not only is it morally unacceptable that these basic human rights are not universally recognized and protected, but also the failure of developing countries to provide legal protection for their workers means that the poor who make up the majority of the workforce are at risk. When labor markets discriminate and millions continue to be denied jobs as a result of discrimination based on gender, race or religion then they will also be vulnerable to abuses such as forced labor. Lack of employment opportunities push families to send their children to work in horrible conditions. Child trafficking has become a lucrative business and it is estimated that there are 1, 200, 000 victims each year who are forced into trafficking as a result of poor family conditions.5 Barriers in the labor market have also resulted in conditions of forced labor. The ILO has examined the conditions in South Asia where most persistent incidences of bonded labor were found primarily in agriculture and in certain industries. It has found that men, women and children are tied to their work through a vicious cycle of debt. In a survey of 1000 laborers from the Sind region of Pakistan, it was revealed that three-quarters have been subject to physical restraint, such as private jails and that some 90 percent of their children have been forced to work.6
There is a clear connection between core labor standards, as one indiscriminately affects the other. A recent paper by the ILO examines this linkage and notes that when workers and employers are denied the right to organize and bargain then there is a certainty that they cannot exercise other fundamental rights such as the freedom of association.7 In this setting, the lack of freedom of association can have an impact on child labor. For example, teachers are frequently denied the right to unionize and this situation can foster demoralization and poor teaching. As a result, young students may drop out due to the lack of educational stimulation and may head into the labor market where conditions of child exploitation may be found.8 Or forced labor can occur when there is a denial of the freedom of association and other principles. Forced labor is identified in the ILO Declaration as forced or compulsory labor, paid or unpaid, which is performed involuntarily or under threat of punishment. It is also undeniably connected to the exploitation of children and women. This situation can change if core labor standards such as collective bargaining are used as an instrument in the fight against child labor.
The World Bank and Core Labor Standards
Clearly fundamental changes to the labor markets are necessary and vital to the development and growth of developing countries. The World Bank, an international financial and developmental institution, has been lobbied by the World Confederation of Labor for over a decade to address concerns related to labor markets. The World Bank’s Social Protection Unit is responsible for dealing with labor standards and trade unions. It has set among its goals social protection intervention and risk-management of vulnerable peoples. Its activities include labor market interventions, unemployment or programs to reduce harmful child labor. Unfortunately, there is no official World Bank policy on core labor standards. It does recognize the relevance of labor standards in providing access to safe and productive work and in the mission of reducing poverty and in providing a legal framework regarding employment, job creation and worker protection. Although the World Bank recognizes that the principles embedded in the core labor standards can contribute to the World Bank’s development mission, compliance with core labor standards is not a condition for lending or technical assistance in client countries.9
The ambivalence of the World Bank to officially enforce the core labor standards as a condition of its loans is primarily related to its current emphasis on basing lending conditions on the basis of a country’s demonstrable economic performance.10 In short, core labor standards may be highly relevant for the development mission of the World Bank, but it is not in the mandate of the World Bank to uphold core labor standards. Although it works with international trade unions in policy dialogues and in particular with the ILO for its expertise in designing and implementing labor-related reforms in World Bank-financed projects, the World Bank has instructed its staff to take only economic considerations into account in its decisions.11 The World Bank is clear “that it does not intend to act as an enforcement body of the ILO.”12 Rather, it is left to the discretion of World Bank staff whether they chose to address core labor standards with countries in their country assistance strategy (CAS) reports.
As a result of the centrality of economic considerations as a primary factor for loans, the World Bank maintains that in its article of agreement it is “prohibited from interfering in the political affairs of any member or being influenced by the political nature of the member(s) concerned.”13 It states that as a general rule that the Bank will not and does not act as an enforcement agency for international or national laws. While admitting that it could attach conditions on labor standards to loans, it states that it would only do so to the extent that a lack of compliance undermines the development objectives of a specific project.
However, the World Bank does take a clear position in regards to the issues of child labor and forced labor. The International Finance Corporation (IFC) and Multinational Investment Guarantee Association (MIGA) do have policies that forbid the use of harmful child or forced labor in investor projects. The World Bank argues that child labor is not rational economic policy. It has actively discussed child labor issues in policy dialogues with client countries, worked with international organizations and NGOs in facilitating awareness and more importantly, it has required compliance with applicable child labor laws and regulations in specific projects targeted at eradicating the worst forms of child labor. The World Bank supports a wide range of education programs, some designed to increase the demand for schooling and to reduce child labor. Through its affiliate, the International Development Association (IDA), the Bank has worked with governments in South Asia to expand primary education enrolment and to improve the quality of instruction.14 The World Bank has also worked in Brazil in an Urban Sector Development project providing essential services, including infrastructure and training to certain facilities that have been identified with the assistance of the local government to help street children and children at risk.15 Often in ongoing project reviews, World Bank regional managements are instructed to monitor Bank-assisted projects for child labor and if a problem is found, they are to work with client countries to work out an appropriate measure to deal with the problem. The World Bank has also established partnerships with many governmental and intergovernmental organizations like the ILO and UNICEF on child labor issues.
Regarding forced labor, the World Bank does not support projects where forced labor would be employed. The World Bank has only partially addressed issue of discrimination in the labor market. In its Operational Policy on Gender Dimensions of Development, it aims to reduce gender disparities and to enhance the participation of women in labor markets by integrating gender considerations in country assistance programs. The World Bank hopes to improve the opportunities for women by supporting a number of poverty-targeted interventions such as microcredit programs that emphasize women’s participation and empowerment. Perhaps the most frustrating aspect of the World Bank policy towards the labor market is its treatment of the freedom of association and collective bargaining. The World Bank has acknowledged recently the value of unions in its client countries and is active in dialogues with trade unions, but it has maintained until recently, that there is no clear correlation between unions and collective bargaining and economic performance.16 However there appears to be a shift in the policy development of the World Bank as several factors have pushed it to place a greater emphasis on reforming labor markets.
The World Bank and Labor Markets
The continuing criticism of the World Bank is that its array of projects has had highly destructive consequences for the poor. Currently, the World Bank is complementing its direct support for projects with key insurance and financial support from foreign corporate investment in developing countries. It has increasingly placed importance on the IFC which provides loans and takes equity positions in privatized projects and as well as with the MIGA which provides insurance against political risks and services to related private investments. Although the World Bank has committed 69 percent of its adjustment loans to poverty reduction, the criticism is that these loans are often conditioned on a country’s willingness to promote privatization, marketization and deregulation of specific sectors.17 In weak economies with poorly developed private sectors, the public sector is the primary employer and the government acts as the guarantor of security benefits for workers. With privatization, sudden and massive layoffs in the public sector has thrown thousands out of work resulting in a large pool of unemployed workers and a consequent reduction in the wage and bargaining power of all workers in the afflicted economies.18 Privatization also reduces the ability of the state to control their national economies and the power to use national instruments to promote social goals.
One of the core tenets behind the lending programs of the World Bank is the promotion of “labor flexibility” or “labor mobility”, a theory that critics say treats labor as simply another commodity with companies having the flexibility of hiring or firing workers, or changing work conditions and contracts with almost no regulatory restrictions.19 This sort of policy was designed to lower unemployment and increase investment at the expense of lowered wages. Former World Bank chief economist, Joseph Stiglitz, has stated that the evidence in Latin America has not supported the conclusion that the unemployment rate would go down and that job creation would go up when wages were lower. Rather, Stiglitz has pointed out that although labor market flexibility was designed to move workers from low productivity jobs to high productivity jobs the case too often was that it “moved people from low productivity jobs to unemployment, which is even lower productivity.”20 Critics have argued that the World Bank and the IMF have treated labor flexibility almost as a code for mass layoffs and stripping away the legal protection of workers. In its recommendations to the new Mexican government of Vicente Fox, the World Bank has encouraged Mexico to phase out a wide array of worker’s rights ranging from its current system of severance pay and collective bargaining to obligatory union memberships.21
As is the case in Mexico, privatization has destroyed the once powerful official unions. Three decades ago, three-quarters of the workforce in the country belonged to unions, but as state-owned sectors were sold out to private corporations union membership has decreased to less than 30 percent.22 It is estimated that almost half of Mexico’s workers lack coverage by its national health care system due to the growth of the informal sector. Companies often do not adhere to the law and as a result, workers are often paid less than the minimum wage with no health insurance or retirement benefits. In 1997, workers of the 6521 kilometer Pacific North line which was sold to Jorge Larrea’s Grupo Mexico attempted to prevent the layoffs of half of the railroad’s thirteen thousand workers with wildcat strikes. But ultimately despite paralyzing operations for some time, they were unable to stop the cuts.23 As a result of two decades of IMF and World Bank ‘reforms’, the income of Mexican workers has lost 76 percent of its purchasing power. The figures are startling as inequality in Mexico has worsened since 1994 – wealth that is concentrated in the top ten percent of the population has seen an increase while the remaining 90 percent has seen a decrease in their wealth.24
The failure of the World Bank to often take into account the negative social impacts of its policies has garnered widespread opposition from workers and trade unions. Workers and trade unions are invariably worse off when privatization schemes result in real power being taken away from the poor. In most cases, there have been minimal safeguards to ensure that privatization enhances efficiency rather than the reaping of public assets and destruction of labor rights. During the time of mass privatization, the IMF and the World Bank ignored the proposal by trade unions in Central and Eastern Europe for a regulatory framework and respect for worker’s rights. Although the international financial institutions acknowledge their mistakes in this region, it has nonetheless largely ignored these lessons.25
In reaction to the current situation, unions in developed and developing countries are organizing protests denouncing the World Bank. In the WTO conference in Seattle and in recent protests, union members are expressing worldwide solidarity and a commitment to furthering justice for all workers in every country. Even union members in industrialized countries recognize the need to improve the working conditions in developing countries. As one American protestor explained at a rally, “If there is not justice for workers in other countries, then ultimately there will be no justice for American workers.”26 Admittedly, it will be a difficult task to organize unions in developing countries where labor is cheap and plentiful and where civil institutions are weak. Where civil society is weak, government opposition to trade unions is not necessarily opposition to unionism but to an opposition of any kind. There are many cited cases where union members are killed due to government hostility towards independent unions. In Colombia, 178 union members were killed in 1994, many of them by state security forces.27
Changes
The World Bank faced a crisis in the mid-90s as it witnessed failure to its adjustment programs to deliver sustained growth in developing nations and as its prized pupil, Mexico, experienced a financial crisis. Its fundamental tenets were in question when many were aghast at the virtual collapse of many Asian economies that followed IMF and World Bank principles. The ‘Fifty Years is Enough’ campaign involved many NGOs and other civil society groups demanding fundamental changes to the practices of the World Bank which the movement felt was adversely impacting developing countries.28 As a result, even though the World Bank continues to emphasize its traditional approach of looking at the primacy of economic growth in development, it now recognizes that economic growth is only one among many aspects in development. It now has put poverty and the poor as the centerpiece of its mission, as it has declared that its mission is “a world without poverty.” It has also embraced the UN Millennium Development Goals (MDGs).
If the World Bank is truly concerned with eliminating poverty on a social and more human level, then it should be willing to uphold and promote core labor standards. If the poor make up the majority of low-skilled labor and the poor make up the majority, then it can be concluded that it is more than in the interests of the World Bank and the governments to ensure that the rights of the majority– the poor who are workers – are legally protected. The difficulty will be in convincing governments and critics who see core labor standards as another form of protectionism imposed by the industrialized countries. The common charges are that labor standards would hurt the comparative and competitive advantage of developing countries that rely on cheap and plentiful labor. However, the new poverty reduction and development strategy established by the partnership of the World Bank and the IMF is a breath of fresh air. It claims that it will put governments of developing countries in the driver’s seat and that it will consult labor and trade unions on labor market issues. Officials at the IMF and World Bank have also stated that Poverty Reduction Strategy Papers (PRSPs) will allow policy to be driven by the needs of developing countries rather than the traditional imposition of policies devised in Washington.
The failure of its policy predecessor, the structural adjustment programs (SAPs) that had emphasized development through economic growth and trade liberalization has pushed the World Bank to revise its traditional policies. SAPs had failed because they imposed a very particular model of development and narrow instruments that failed to take into account the very diverse and unique characteristics of individual countries.29 PRSP is designed as a participatory process that will allow civil society participation and greater control by client countries to focus on their primary goal of poverty reduction. In September, the World Bank approved a $200 million loan to continue the work of reforming Colombia’s labor markets. The First Programmatic Labor Reform and Social Structural Adjustment Loan (PLaRSSAL I) will work with the Colombian government to help implement Colombia’s recent legislation amending labor regulations and it will also continue reforms in education, health and social protection. The reforms are designed theoretically to increase employment, strengthen social welfare with an emphasis on education and training. It is estimated that this project will create 400,000 jobs in the next four years.30 It also hopes to contribute to good governance.
With the growth and political mobilization of civil society groups and their ability to rally public opinion, there has been some rethinking by the World Bank about the role of civil society in the global governance system. This is highlighted in attempts by the World Bank to build their links with civil society groups although it is too often that NGO participation in World Bank activities are only desirable when it improves the efficiency of its operations.31 There must be greater emphasis placed on the value of trade union and NGO participation because they provide a social dimension that is needed to constantly sensitize policies and practices. Engaging civil society and developing communication channels provide a forum where NGOs and local community movements can express their concerns so that the World Bank is informed of the impacts of its trade liberalization policies. In collaboration with the IMF and WTO, the World Bank can also work closely with civil society in developing systems for the monitoring economic and social change.
The World Bank should also continue its dialogue with trade unions. A recent World Bank report Unions and Collective Bargaining: Economic Effects in a Global Environment focused on the question of whether there is a link between labor standards and economic performance. The study was based on more than a thousand previously documented surveys. The report recognizes that workers who belong to trade unions earn higher wages, work fewer hours and have longer job tenure than their non-unionized counterparts.32 It also recognizes that in countries with highly coordinated collective bargaining there was a strong link to lower and less persistent levels of unemployment, smaller inequality gaps and fewer and shorter strikes.
The report is a small but significant step because it marks a departure from the traditional cynical view that the World Bank has held towards unions. The World Bank, in coordination with the IMF, has recently established a process for regular biannual dialogue with international trade union leaders from around the world. These meetings are often complemented with technical meetings on policy issues of interest to both parties such as pension reform, privatization and labor market regulation. More importantly, the World Bank could use the conclusions of these meetings as a foundation for its development of a better relationship with trade unions. Increased policy dialogues and coordination in working with unions in the area of ground monitoring to ensure legal protection of workers is a necessary step. Another important mission for the World Bank would be for it to facilitate the organization of workers into independent trade unions to ensure that the voices of the poor are heard and that wages and safe work conditions can be protected through collective bargaining.
Core labor standards must be internationally recognized and respected, not only by the World Bank but also every single country. As Zafiris Tzannatos, co-author of the trade union report and a World Bank authority on social protection issues, has stated, “You also need international engagement around labor standards because individual countries often have very different views on what constitutes proper standards and what the consequences of adopting them might be.”33 If the World Bank is committed to the UN Millennium Goals of reducing poverty in half by 2015 then it must work in close coordination with the developing countries to that end. This means a commitment to poverty reduction with an emphasis on reforming labor markets where a majority of the low-skilled workers in developing countries are vulnerable and exploited. There must be legal protection of workers’ rights with safe working conditions. There must also be respect for the rights of independent trade unions to function without the intimidation from governments. There must be respect for the voices of civil society. And just as important, there must be respect and consensus between the World Bank and the international financial institutions about prioritizing the needs of developing nations. All these conditions are fundamental requirements for development and governance.
References
1 Betcherman, Gordon, “An Overview of Labor Markets World-Wide: Key Trends and Major Policy Issues. The World Bank Social Protection Paper No. 0205 April 2002.
2 Ibid. p. 5.
3 Manning, Chris, “Does Globalization Undermine Labour Standards? Lessons from East Asia,” Australian Journal of International Affairs. July 1998, Vol. 52, No. 2.
4 O’brien, Terry, “Sharing the Gains from Globalization,” Ecodate, March 2003, Vol. 17, No. 1.
5 Ibid. P. 17
6 “Declaration on Fundamental Principles and Rights at Work,” ILO report
http://www.ilo.org/public/english/standards/decl/reports/summary/t2index.htm
7 Martinez, Daniel, “Fundamental Principles and Rights at Work: Value, Viability, Incidence, and Importance as Elements for Economic Progress and Social Justice,” ILO Working Paper. July 2002.
8 Ibid. p. 20
9 World Bank Core Labor Standards Toolkit
10 “Core Labor Standards and the World Bank” found on the World Bank Group website: www.worldbank.org
11 Ibid.
12 Core Labor Standards Toolkit-Step 3: Diagnosing Core Labor Standards in the CAS www.worldbank.org
13 “Core Labor Standards and the World Bank,” www.worldbank.org
14 “The World Bank and Child Labor in South Asia,” South Asia Regional Brief for the World Bank. June 1998.
15 “Child Labor” The World Bank Press Backgrounder. Sept. 1998
16 “Core Labor Standards and the World Bank,” www.worldbank.org
17 “Close Down the Masters of Reinvention: The Case for a World Bank Shut Down,” Multinational Monitor. June 2000, Vol. 21, No. 6.
18 Lloyd, Vincent, and Weissman, Robert, “Against the Workers,” Multinational Monitor. Sept. 2001 Vol. 22, No. 9.
19 Ibid.
20 Ibid.
21 Ibid.
22 Bacon, David, “World Labor Needs Independence and Solidarity,” Monthly Review: An Independent Socialist Magazine, July/Aug. 2000, Vol. 52, No. 3.
23 Ibid.
24 Ibid.
25 Lloyd, Vincent and Weissman, Robert,
26 “Labor and Protest in DC,” Nation, May 1, 2000. Vol. 270, No. 17.
27 “Unions for the Poor,” Economist, July 1, 1995, Vol. 336, No. 7921.
28 Pender, John “From ‘Structural Adjustment’ to ‘Comprehensive Development Framework’: conditionality transformed?” Third World Weekly, Vol. 22. No. 3. p. 402.
29 Pender, John, p. 399.
30 “Columbia: World Bank Grants $200 Million Loan to Continue Labor Reforms and Social Development,” The World Bank Group Press Releases, Sept. 9, 2003.
31 Wilkinson, Roden, and Hughes, Steve, “Labor Standards and Global Governance: Examining the Dimensions of Institutional Engagement,” Global Governance, Apr.-Jun 2000, Vol. 6, No. 2.
32 Aidt, T. and Tzannatos, Z., “Unions and Collective Bargaining: Economic Effects in a Global Environment,” 2002, World Bank.
33 ‘Economies Perform Better in Coordinated Labor Markets,” World Bank Press Releases, Feb. 12, 2003.
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