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Oxfam challenges the World Bank's policies on labour market deregulation

Oxfam UK/I, SAPs NEWS, 1 April 1996

On Wednesday 27th March, just a few days before the G7 Job Summit, an Oxfam UKI policy advisor and Chilean NGO activist researcher met with World Bank officials to challenge the Bank's labour intensive export led growth strategy. Presenting indepth research on Chile's flexible labour market they argued that labour market deregulation should not should not be considered a magic recipe for job creation.

Widely touted as a free market success story, Chile has been a laboratory for labour market deregulation. Yet the research conducted for Oxfam UK/I by Chilean, Fernando Leiva, contains a warning for countries wishing to pursue a similar route. Contrary to the predictions of orthodox economists, Chile's flexible labour market has failed to deliver growth with equity. Employment expansion has taken place in low paid, low quality, precarious jobs creating a new class of working poor, many of whom are women. The report notes that:

• Between 1990 and 1992 the number of workers in small firms employing between 2 to 5 people increased by 143,000 of which 59,000 worked inside dwellings
• In 1964-65 there were 208,000 permanent wage workers in the agricultural sector, one of the main engines of Chile's export industry, and 147,000 seasonal workers. By 1991-1992, the number of permanent wage workers had decreased to 100,000 and the numbers of temporary/seasonal workers had increased to 400,000.
• In the fruit exporting sector where more than half the workforce are women, 83% are now employed on a temporary basis and between 40-50% have no contract.

  While unemployment has fallen significantly in recent years this masks widespread under-employment which is not captured by official figures:

• A supplementary survey by the National Institute of Statistics showed that 873,514 women officially classified as "inactive" in fact worked an average of three and a half months per year. These women represented more than half the "official" labour force.

  The spread of "flexible" working practices has allowed companies to bypass government legislation and collective bargaining agreements leaving workers vulnerable to exploitation. Temporary and home-based workers are effectively denied the right to collective bargaining. Most have no job security and are not entitled to social security benefits such as sickness and maternity payments.

  The increase in jobs and wages helped reduce poverty from a high of 40% of households in 1990 to nearly a third in 1994, finally reaching the 1970 level before the free market experiment began. However, despite this recent achievement many Chileans believe that poverty is unacceptably high for a comparatively wealthy country which grew at an average of 11% between 1992-1994.

• Low pay and the sporadic nature of work mean that many people are still unable to earn an adequate monthly income in 1992 43 per cent of salaried workers earned less than the minimum required to cover basic necessities, a factor underlying the increasing numbers of women and children entering the workforce.
• Overall inequality increased between 1992-1994 as workers wages have been unable to keep up with productivity rises while the rich increased their share of income. The richest 541,000 Chileans earns the equivalent of the bottom 10 million.
• Between 1987 and 1990 rural Chile experienced one of the most dramatic increases in inequality on record, alongside a rapid expansion of natural resource based exports.

These trends are contributing to a new generation of social problems, such as stress, depression, drug abuse, and crime which psychologists have linked to economic stress.

The report also argues that the incentive structure created by deregulation are strangling moves to a high value added export strategy which is widely considered necessary for Chile to move to second phase of export expansion.

The report titled "Flexible Labour Markets, Poverty and Social Disintegration in Chile 1990-1994" by Fernando I. Leiva, March 1996, is available from Oxfam UK/I Policy Department. A short briefing paper by Oxfam UKI is also available titled "The World Bank's Labour Intensive Growth Strategy: The Case for Reform"'

For further information please contact Ruth Mayne, Oxfam UK/I Policy Department, tel no: 01865 312279.

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