Library picture: Jim Yong Kim, president of the World Bank, is seen during a meeting in Peru, 1 July 2013. Photo credit: Dominic Chavez/World Bank
The World Bank is proposing lower minimum wages and greater hiring and firing powers for employers as part of a wide-ranging deregulation of labour markets deemed necessary to prepare countries for the changing nature of work.
A working draft of the bank’s flagship World Development Report – which will urge policy action from governments when it comes out in the autumn – says less “burdensome” regulations are needed so that firms can hire workers at lower cost. The controversial recommendations, which are aimed mainly at developing countries, have alarmed groups representing labour, which say they have so far been frozen out of the Bank’s consultation process.
Peter Bakvis, Washington representative for the International Trade Union Confederation, said the proposals were harmful, retrograde and out of synch with the shared-prosperity agenda put forward by the bank’s president Jim Yong Kim.
He added that the WDR’s vision of the future world of work would see firms relieved of the burden of contributing to social security, have the flexibility to pay wages as low as they wanted, and to fire at will. Unions would have a diminished role in new arrangements for “expanding workers’ voices”.
The paper “almost completely ignores workers’ rights, asymmetric power in the labour market and phenomena such as declining labour share in national income,” Bakvis said.
The International Labour Organisation has also expressed alarm at the proposals, which include the right for employers to opt out of paying minimum wages if they introduce profit-sharing schemes for their workers.
The WDR draft says: “High minimum wages, undue restrictions on hiring and firing, strict contract forms, all make workers more expensive vis-à-vis technology.”
Five years ago, the World Bank’s 2013 World Development Report concluded that labour regulations had little or no impact on employment levels, but the draft for the 2019 WDR says that if workers are expensive to dismiss, fewer will be hired. “Burdensome regulations also make it more expensive for firms to rearrange their workforce to accommodate changing technologies.”
The report is being prepared amid growing speculation about the impact of artificial intelligence and automation on employment and wages in future decades.
“Rapid changes to the nature of work put a premium on flexibility for firms to adjust their workforce, but also for those workers who benefit from more dynamic labor markets,” the draft says.
Bakvis said the draft “puts forward a policy programme of extensive labour market deregulation, including lower minimum wages, flexible dismissal procedures and UK-style zero-hours contracts. The resulting decline of workers’ incomes would be compensated in part by a basic level of social insurance to be financed largely by regressive consumption taxes.”
The paper says that labour regulations “protect the few who hold formal jobs while leaving out most workers” and the sort of social protection schemes that began with the German chancellor Otto von Bismarck in the late 19th century were not appropriate because they covered only a third of developing country populations.
Bakvis said the draft did not “examine options for incentivising the formalisation of work, despite the considerable efforts the ILO has made toward that goal and the real progress that has taken place in some developing countries to deliver the benefits of formalisation: legal protection of workers’ rights, including their right to safe workplaces, and access to social security.
“Instead, the WDR takes informality as an inevitable state and, worse, implies that it should even be promoted. Nor does it examine how the undermining of labour market institutions through deliberate corporate strategies such as outsourcing and disguised working relations [for example, classifying Uber drivers as independent contractors] can be countered by providing legal protections for these categories of workers.
“Workers in the platform economy who have engaged in campaigns for recognition of their rights have encountered fierce resistance from their companies.”
Bakvis added that the report insinuated support for companies such as Uber by agreeing that their workers were not employees but were “emerging as a separate labour category”.
A World Bank spokesman said: “To stimulate debate and draw attention to critical issues, the report will present a range of ideas for how governments can create the conditions for workers to benefit from huge shifts in technology, demographics, urbanisation and other factors.
“To end poverty and boost shared prosperity, it’s vital that we consider new initiatives to meet the disruption that will surely come from these structural changes. We encourage and look forward to comments and an evidence-driven discussion on this important topic.”