The Truth About Venezuela’s New Labor Law
On April 30, before departing to Cuba to receive additional cancer treatment, President Hugo Chávez signed Venezuela’s new labor law on national television, in commemoration of Venezuelan Labor Day. The ceremony was — as most of his recent speeches have been — short, revealing few details about what the law actually entails.
After being reviewed by the Supreme Court, the 554 articles and 7 transitional provisions were formally approved and published on May 7. The ambiguity surrounding the details has left many wondering about the finer points of the new law, however. Critics, including opposition candidate Henrique Capriles, have argued that the law was approved primarily for political posturing, only seeking the consultation of his ministers and bureaucrats on such a sweeping reform, not business advocates or even the National Assembly itself.
The law’s enactment came less than two months away from the expiration of the 2010 passage of Venezuela’s “enabling law,” which gave the president 18 months to govern through issue decrees carrying the full force and effect of a measure passed by the Assembly. While the power was bestowed upon him to give him authority necessary to cope with the heavy rains and flooding that ravaged the country, as few as about six of 33 approved laws have to do with the reasons for requesting the enabling law. Despite its lack of relevance, Chávez circumvented the Assembly, unilaterally enacting this law. On the cusp of his most challenging election ever, he continues to tout it as a fundamental tool for the continuation of his socialist project.
The law does have populist appeal – reducing the working hours from 44 to 40 hours per week, limiting night shifts to 35 hours per week, raising minimum wage by nearly one-third, entitling women to an additional two months of maternity leave, and protecting new parents from dismissal for up to two years after the child’s birth.
In addition, it seeks to implement absolute job stability; in the absence of due cause, the only way for employers to terminate any employment relationship is via a workers’ resignation. The law reestablishes a rule calling for a retirement bonus of a worker’s last monthly wage multiplied by their years of service, while also requiring that employers compensate unfairly dismissed workers with double their retirement bonus.
Finally, the measure seeks to abolish private sub-contracted labor in Venezuela.
To the naked eye, many of these provisions would appear to be beneficial to working-class Venezuelans. However, many critics argue that law also promotes a regulatory scheme that many believe will hinder production and adversely impact small and medium sized enterprises, especially if the government is unable to reduce inflation in the coming years.
Others also fear that if not accompanied by the right policies to stimulate productivity and growth, the new law could inevitably deteriorate real wages, lead to a reduction in jobs availability, and result in lower investment and production, all of which would exacerbate inflation rates and shortages. Furthermore, critics have argued that women could be severely affected by the new regulations, as companies could see the extensive maternity leave as a risk, generating discrimination by employers when hiring female staff.
The most controversial provision, however, seems to be the formation of a government-managed fund from the severance benefits of workers. Severance benefits are the rainy day money Venezuelans deposit into individual trust accounts, which now will be placed into a state-managed fund. Previous to the new law, workers had direct access to these funds when they change jobs, retire or need to cover medical, housing or other expenses. Following rumblings of the proposed change, nervous workers lined up at banks to empty as much as they can out of their severance accounts. But the government, insisting that the new plan was still in development, blocked public sector workers from drawing on the accounts. Indeed, the government’s proposal has sparked widespread concern that could prove to weaken the president this fall.
Ostensibly, the provision’s objective is to establish a mechanism used to guarantee new bonds and finance development projects. But local analysts have cautioned that the private sector will absorb these costs, stoking unemployment. Moreover, analysts have expressed worries over the increased control of these benefits by a government notorious for its lack of transparency.
In addition, the labor law will restore the retroactivity of severance payments from June 1997, for those currently working in private or state-run sectors who decide to quit — a measure some believe will cause further strain on businesses.
As Ismael Pérez Vigil, the executive president of the Venezuelan Confederation of Industries (Conindustria) claims, “obviously, retroactivity (of severance payments) will have a very strong impact; (Venezuelan) businesses will be hardly hit.”
By appealing to workforce and the lower classes, Chávez hopes to use the labor law as an electoral gambit. By failing, however, to integrate many sectors into the discussion, skeptics fear that it will give rise to conflicts between businesses and employees, risk fueling unemployment, and shrink Venezuela’s private sector even further. Its full impact remains unclear, but it is apparent that there is more behind the law than the simple desire of bringing social justice to workers.