Many countries struggle with integrating immigrants successfully into their labour markets. Often immigrants are overqualified for the jobs they perform, due to the fact that their qualifications and experience are not recognised. Germany’s Recognition Act made it simpler for migrants to apply their pre-existing skills and qualifications and is already showed success in its first year by recognising 30,000 foreign qualifications.1
Recommendation 1: Undertake structural reform to increase flexibility, adaptability and mobility within and across labour markets.
Structural reforms create supportive conditions for job creation and participation.
Why It Matters
Labour market reforms that enhance access, participation, mobility, competitiveness and productivity whilst maintaining an appropriate level of social protection and worker certainty are fundamental to sustainable economic growth:
- Closing the gap between male and female employment rates leads to increased GDP – on some estimates, by 24% in Italy, 21% in Japan and 12% in Germany.2
- Higher shares of fixed-term contracts and temporary agency employment positively correlate with higher employment levels.3
- In countries where firms can easily resort to temporary employment and Temporary Work Agencies, the undeclared economy is smaller.4
- On some estimates, reducing barriers to temporary labour migration could add $150bn US dollars to global GDP.5
In many countries, the design of the labour framework was to prevent the loss of jobs – it contains little by way of encouraging or supporting businesses to create new jobs. Employers are more inclined to hire people when labour laws are less complex and variable, where non-wage taxes are reduced, compliance burdens are lowered and recruiting risks and costs can be mitigated.
Having a framework which makes it easier for businesses to hire assists in shifting labour from informal markets into formal markets as well as enhancing the opportunity to engage the whole talent pool. Removing barriers such as temporary migration restrictions, excessive red tape and poor access to childcare will support an environment of enhanced jobs growth and increased participation. Increasing flexibility supported by appropriate social protections allows business and government to jointly create more jobs and be responsive to the continuing volatility and ambiguity of the future work environment.
It is important to recognise that supporting the ongoing participation of all people is a shared responsibility. Individuals must take responsibility for planning their financial security and ensuring that they remain productive and valued members of the workforce. Businesses must also play a critical role in creating cultures and organisations that enable flexible jobs and working arrangements.
Identify and remove regulatory barriers to offering diverse forms of employment arrangements, such as access to part time and flexible hour contracts; use of contractors and non-payroll employees; unintended age-based discrimination and barriers to the operation of regulated staffing agencies.
Reduce tax burdens that inhibit hiring decisions and the formalisation of labour e.g. payroll taxes.
Increase the availability of high quality/low cost child care to provide incentives for parents to return to work.
Reduce restrictions on temporary movement of workers and include movement of labour for services trade in bilateral, multilateral and preferential trade agreements.
Reduce the cost and time of visa and work permit processing.
Encourage industry and professional bodies to increase the level of standardisation, transparency of qualifications (both intra and inter-country), including simplifying re-qualifying and re-testing.
What Can Be Achieved
Flexibility in Labour Relations6
Brazil’s federal government has promoted flexibility in the labour market by allowing the hiring of temporary workers by the private sector. The provincial measure allows for flexible and unregistered contracts for all sectors of Brazil’s economy at any time of the year (and not just limited to the FIFA world cup preparations).
Portugal has put in place a new schedule for severance payments. Under the new agreement, on dismissal, newly hired workers will be eligible for 12 days per year of service instead of the earlier 20.
In Mexico, the 2012 decree enacting labour market reform reduced dismissal costs and simplified procedures, introduced new fixed-term contracts for seasonal workers as well as initial training and probationary periods, and new regulations for subcontracting/outsourcing practices.
“Flexicurity” in Denmark7
Denmark’s labor market is closely observed largely due to the success of its ‘flexicurity model’. The model consists of three elements – flexible hire and fire laws, generous unemployment benefits and an active labor market policy. Denmark provides relatively high levels of unemployment benefits to workers, has a number of active labour market policies to help the unemployed to gain skill training and relevant guidance to find a job, and makes it easy for enterprises to reduce headcount during downturns and increase when business improves.
Argentina’s Labour Tax Reforms8
Argentina has created a labour “single tax” (Monotributo) to turn employment to formality in SMEs. Procedures have been simplified so only one single tax payment, including all social contributions is required. The amount a company pays is linked with their size and sector, but does not affect workers’ rights and benefits.