Labour Legislation and Waged Agricultural Workers: Policy advice by the World Bank

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This report attempts to summarise World Bank's approach and policy advice regarding labour legislation in the Agriculture sector of six different countries, Indonesia, Philippines, Bangladesh, India, Morocco and Chile which were selected as country cases by the Oxfam International Labour Rights team. The report identifies the 'cautious' and the 'less cautious' approach employed by the World Bank and relates these strategies to the Agriculture sector of these countries. It looks at labour rights issues, minimum wage, cost of hiring and firing of workers and the effect of these on agricultural workers in the selected countries. The review discovers that World Bank's Policy and advice for India, Morocco, Chile and Indonesia follow the less cautious approach which does not necessarily comply with 'Core Labour Standards' and labour legislation while in Bangladesh, the cautious approach which focuses on compliance with Core Labour Standards and protection of workers is being implemented. On the other hand, World Bank documents regarding the Philippines lack any reference to labour legislation and core labour standards.
    Labour Legislation and Waged  Agricultural Workers Policy Advice by the World Bank Research commissioned by Oxfam Novib Carlos Montes Anja Linder September 2007 Cambridge, UK The authors accept sole responsible for the contents of this report  Legislation and Waged Agricultural Workers   1 Executive Summary This is a summary of the report on “Labour Legislation and Waged Agricultural Workers: Policy Advice by the World Bank.” The report was commissioned for the Oxfam International Labour Rights Team by Oxfam Novib, to inform its thinking on agriculture and development as well as to provide country based information to Oxfam national programmes in Indonesia, Philippines, Bangladesh, India, Morocco and Chile. The work for this report was carried from late August to late September 2007. The report reviews key World Bank documentation to summarise the World Bank approach and policy advice regarding labour legislation. This is done for World Bank advice in general as well as for World Bank advice related to the six country cases referred to above. The report also presents some discussion, for each of the country cases, on how labour legislation relates to the agriculture sector as well as the analysis and recommendations of some other actors. The aim of the research is extremely relevant and ambitious. However, our work has focussed only on collecting the initial set of information. Labour Legislation: The approach and policy advice of the World Bank. The findings in this section suggest that it is not easy to talk about a general approach of the World Bank to labour legislation. On the one hand, we found that the World Bank’s Labor Market Group and the Social Protection Unit, together with other official documents, such as the World Development Report 2006 on Equity and Development, often follows a “cautious” and evidence based approach, i.e noting clearly the trade-offs between flexibility and workers protection (see below). On the other hand, we found that the very influential Doing Business project follows an approach and policy advice on labour legislation that is generally less “cautious” -also reflected in the World Development Report 2005 “A Better Investment Climate for Everyone.”  A cautious approach : The Social Protection Unit is responsible for supporting the Bank’s social protection agenda, and its documents generally recognise that there are strong differences of opinion about the costs and benefits of employment protection policies and proposes that market policies must get beyond ideological positions and rely more on empirical studies. Under this “cautious” approach, the World Bank has also provided some support to the International Labour Organisation’s (ILO) “Core Labour Standards” (freedom of association and the right to collective bargaining, elimination of forced labour, child labour and equality and non discrimination). This had been requested by the countries providing funding to the World Bank. The Bank has included Core Labour Standards in its rating of countries for the purpose of resource allocation, (the Country Policy and Institutional Assessment, CPIA), and has also developed a toolkit for the incorporation of labour standards into the Country Assistance Strategies. However, there is some evidence that the use of the toolkit on recent Country Assistance Strategies is limited and that Bank operations generally do not place significant emphasis on Core Labour Standards. By contrast, the Asian Development Bank has recently launched a much more comprehensive and systematic handbook on core labour standards. The “cautious” approach to labour markets was also followed by the World Development report 2006 which noted that “There is an international consensus that core labour  Executive Summary Legislation and Waged Agricultural Workers   2 standards…have such an intrinsic value that they should always be pursued” this WDR also brought up the example of Cambodia, noting the positive effects of Core Labour Standards there. The WDR 2006 is also supportive of trade unions as the “cornerstone of any effective system of industrial relations” and highlights the positive impact they have had on the situation of landless agricultural workers in north-eastern Brazil. Another example of World Bank following a “cautious” and evidence-based approach can be seen in the recent report on Informality. The report finds that attempting to reduce the weight of labour legislation by creating special classes of less protective contracts can often effectively create a parallel, unregulated “formal” sector that displaces formal contracting. It also concludes that rigorous enforcement of a redesigned labour code that combines strengthened safety nets, well designed worker protections, and worker representation with the flexibility firms need to adapt in a global economy, has the potential to expand formal employment and reduce opting out. More generally, the World Bank also supports activities on labour standards through its dialogue and capacity building with social partners and through its research agenda. There are some good reasons to support a “cautious” and evidence-based approach to labour markets. For example, in a January 2007 Institute for the Study of Labour, IZA (Bonn) and World Bank workshop, Gary Fields a leading labour market expert, presented a paper that stated that “the status of labor market analysis and labor market policy in the development economics community now is similar to the status of poverty analysis and anti-poverty policy two or three decades ago. At the time, the profession knew that it wanted to take on poverty more fully but most in it didn’t know how.” He wrote that a well formulated labour market policy proposal would answer questions about (a) the specific labour objective (b) the particular model to be used (c) the available empirical evidence. He concluded that “If I were your manager it is only after these questions are satisfactorily answered that I would feel comfortable authorizing you to make policy proposals to a client country. Typically, labor market policies have been proposed without such questions being answered.”  A less “cautious” approach: The Doing Business project has been extremely influential since its inception (2004) and is used in the CPIA and influences World Bank analysis, country strategies as well as operations (see next Section). The indicators are attractive because their methodology is simple, they compare and rank 175 countries and they also provide simple, general and straightforward policy recommendations, i.e. improving on specific indicators will lead to a more favourable business climate. The approach of the Doing Business project to labour markets is less cautious and is not generally context-based. For example, the indicator on “Employing Workers” which assesses the labour market does not rely on a carefully constructed labour market models (as above) but on indicators that simply measure the rigidity of employment in terms of the difficulty of hiring and firing and the rigidity of working hours and the level of firing costs. The scoring rewards countries where firms can use fixed term contracts for any type of tasks and can be extended for long periods; it rewards unrestricted night and weekend work and work weeks longer than 5 days or 50 hours; and also rewards the right to fire workers due to redundancy and without notification to third parties. With this methodology, compliance to “Core Labour Standards” is not relevant. In fact, a number of the 2007 top performers in terms of the index of employing workers are not even members of the International Labour Organisation.  Executive Summary Legislation and Waged Agricultural Workers   3 The International Trade Union Confederation, ITUC, and others have complained to the World Bank about the “anti-labour” bias of this methodology. More recently, the ITUC has reported that the World Bank President has agreed to review the Doing Business indicator methodology. On the Agriculture Sector  : Our initial review did not find much general discussion of labour legislation in the agriculture sector. However, the draft World Development Report 2008, Agriculture for Development, has recognised the fundamental  importance of agriculture for sustainable development and poverty reduction and notes that agriculture is a growing employer of wage labour in most regions (particularly in export oriented agriculture). The WDR recognises that balancing flexibility in hiring for employees with basic protection for labourers has not been easy and it notes that labour contracting schemes would benefit from regulation. However, it also states that labour regulation, particularly in middle income countries, can unwittingly reduce employment demand and encourage informality. The WDR agrees that agriculture wage workers face significant occupational and environmental hazards rarely covered under labour protection and notes that agriculture is often excluded from labour legislation (and when it is not, it is also subject to poor enforcement). Surprisingly, the WDR does not discuss the importance of Core Labour Standards in the agriculture sector (except for the issue of child labour, p. 309), the increasing importance of ethical trade initiatives (in which supermarkets are beginning to play such a central role) or the links between trade agreements and labour standards. However, the WDR discusses some migration issues. Case Studies: Indonesia, Philippines, Bangladesh, India, Morocco and Chile In this section, the report describes the World Bank’s policy analysis and advice on labour legislation in six countries selected by the Oxfam International Labour Rights Team and also reviews some effects on the agriculture sector. We also present some of the key issues highlighted by other experts. The section presents initial findings on these issues. The review finds that the World Bank policy analysis and advice for India, Morocco, Indonesia and Chile generally follows the Doing Business project approach , as described above. 1  Moreover, the World Bank finds that, for these four countries, existing labour legislation has a strong “inequality” impact. In the case of India, the World Bank focuses on the difficulty of firing and notes that “these laws create massive inequality…and the “dualism” created…allows discrimination against women and facilitates caste bias in hiring”. However, policy recommendations are not too specific. In Morocco, the Bank analysis remarks that Morocco has one of the highest indexes of rigidity of labour regulations and the recommendations are directly related to affecting the country’s doing business indicators. In the case of Indonesia, the World Bank analysis also bases its analysis on the Doing Business indicators to find that “Indonesia has the most rigid and costly employment regulations in East Asia.” The analysis focuses on the difficulties imposed by the costs of firing and the onerous minimum wage legislation. However, while the Bank argues that labour legislation is 1  As a way of reference, the World Bank “World Business Environment Survey 2000”, surveys 10,000 companies in 80 countries and finds that labour legislation is identified as a major obstacle in India (30%), Philippines (18%), Bangladesh (15%), Chile (11%) and Indonesia (10%) and a moderate obstacle in Chile (43%), Bangladesh (37%), India (34%), Philippines (30%) and Indonesia (21%).
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