42003


                                        Joint Report
               World Bank/IMF/International Trade Union Movement
                         Technical Meeting on Labor Markets
                                   November 6-7, 2003

Summary
The Technical Meeting on Labor Market Reform focused on international labor market
trends and policy issues related to labor market regulations, informality, and collective
bargaining. Participants included World Bank and IMF staff and representatives from
international and national trade union organizations. The meeting concluded with a panel
of Bank staff from various regions and sectors discussing the future directions of the
World Bank in the area of labor market policies.

The technical meeting on labor market reform started with a short overview of the role of
the World Bank in labor market reforms from Mike Walton (WB). He reported that
unions had become more important in the World Bank's discussion since publication of
the World Development Report 1995, acknowledging in particular the important role that
unions have to play in the democratization process. There has, however, been less
momentum in including labor market institutions in debates of sustainable growth and
poverty reduction. Giving several country examples, he elaborated that inappropriate
labor market institutions such as generous unemployment insurance schemes, high
employment protection, high minimum wages and non-competitive wage-setting can lead
to both higher and structural unemployment.

James Howard (ICFTU) responded that even though there is overall agreement on the
fact that unions lead to more stability, security, and equality, this has not been reflected in
the IFIs' work. He pointed out that no link can be found between deregulation of the
economy and expansion of employment and requested that research should be done on
this issue. Ronald Janssen (ETUC) reiterated that it has to be taken into account that labor
market protections provide benefits to workers and the economy.

In discussing labor market trends worldwide Stefano Scarpetta (WB) cited empirical
studies of OECD countries which pointed to the lack of aggregate demand and
inappropriate labor market institutions as the main explanatory factors behind high
unemployment. These factors also play a key role in a developing-country context. Often
this phenomenon is caused by weak formal economies lacking a sufficient number of
jobs, pushing workers towards the less productive informal sector. Together,
unemployment and underemployment impose a heavy cost upon societies in terms of
economic hardship, social exclusion, lost productivity, and wasted human potential and
therefore present a challenge that requires immediate attention. A stocktaking of cross-
country experience reveals that the design of effective policy schemes to fight
unemployment is complex and country-specific in nature.

In the next session Austin Muneku (ICFTU-AFRO) and Bob Kyloh (ILO-ACTRAV)
discussed the challenge of the informal sector for unions and the shift from collective to
individual agreements. They also said that it is important to take into account the



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demographic change in most developing countries, i.e. the cohort size entering the labor
markets in the latter. Youth un/underemployment is central in this discussion, added
Sabur Ghayur (ICFTU-APRO). Maitreyi Das (WB) stated that the informal sector is a
pervasive and persistent economic feature of most developing economies, contributing
significantly to employment creation, production, and income generation. She reported
on different worker-organizations that were formed in the informal economy and the
positive effects the informal sector organizations can have regarding training and
education.

In the next session, Amy Luinstra and Gordon Betcherman gave a short overview of
recent research conducted by the World Bank on the effects of unions and collective
bargaining. The goal of the literature review was to offer a synthesis of the economic
literature on trade unions and collective bargaining and their impact on micro-and
macroeconomic outcomes. It concludes that with sound labor policies in place,
governments, employers, and organized labor can work together in many ways to foster
higher productivity growth and lower unemployment, while securing for workers a
greater share in the benefits of growth. The Bank speakers also briefly described a new
project on core labor standards, jobs creation, and poverty reduction in Africa funded by
the German government for work over the 2004-2006 period.

Peter Bakvis (ICFTU/Global Unions) welcomed the Bank's publication entitled "Unions
and Collective Bargaining", but pointed out that it underestimates many of the positive
results of trade unions because of its micro approach, limited to estimating unions'
impact through collective bargaining He stated that the Bank might want to do further
research on the role that trade unions have played in obtaining benefits such as minimum
wages and social safety nets and government-provided health care for all workers,
independently of whether they are union members.

In the next session, the IMF presented their research on labor market reform in Western
Europe. The union response from Andrew Watt (ETUC), John Schmitt (consultant), and
John Evans (TUAC) was highly critical, specifically challenging the labor market chapter
of the April 2003 issue of the IMF's Economic Outlook in which the IMF argues that
institutions (unemployment benefits rates, unionization, employment protection, labor
taxes, and the coordination of collective bargaining) generally have a negative impact on
employment outcomes. They stated that the analysis of growth and institutions in Europe
received too little attention, especially given the changing macroeconomic environment
following the move towards a single European monetary policy. Europe's biggest
structural problem in terms of unemployment was its rigid, stability-oriented macro-
policy regime, they concluded.

In the afternoon of Nov. 6th, the unions had bilateral meetings with country teams.

On Nov. 7th trade union representatives from Croatia, Sri Lanka, Argentina, and
Colombia reported on these bilateral meetings with Bank staff. Some meetings were
postponed to the afternoon, so that the reports were limited to a few examples.




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Jasna Petrovic outlined the economic and social situation in Croatia. With double-digit
unemployment, a majority of which are long-term unemployed, Croatia has undertaken
some structural reforms under the guidance of the IMF, i.e. new laws on competition,
bankruptcy and labor laws. The WB had advised the government on changes to the labor
code. Petrovic criticized that the latest amendments, which came into force under the new
labor law in July 2003, undermined workers' rights without providing valid indicators
that demonstrate the need for these proposed amendments. Noting that unions were not
consulted on these changes, she called for more transparency on the part of the IFIs when
they are involved in reforms that affect workers.

Ghayur Sabur gave an overview of the labor market reforms which took place through
the introduction of legal reforms in Sri Lanka: the change of the Factory Ordinance Law;
the reform of the termination of Employment of Workmen Act; the change of the
Industrial Dispute Act; and the amendment to employment of women, young persons and
children's act. He welcomed the fact that the WB is considering the development of a
HR-database, including some measurement of the salary structure. He asked to have
access to this database.

Ruben Cortina, the Argentine trade union representative described IFI-led policy reform
in Argentina including large-scale privatizations; the promotion of collective bargaining
at the firm rather than industry level; and other labor market institutions' reforms such as
the promotion of temporary employment and flexibilization of labor laws. After the
financial crisis in 1995, which was characterized by a high level of speculation which
was deeply rooted in the fixed-exchange rate between the Peso and the US$,
unemployment reaches today 18%-20%, 50% if one includes the informal economy, he
stated. Cortina stressed the social costs of the Argentine crisis - high unemployment led
to an increase in kidnapping, drug trafficking, prostitution and other social problems.

Apecides Alviz from Colombia outlined the reforms of labor market institutions in
Colombia, which consisted in flexibilizing labor market institutions and reducing wages.
He criticized the fact that the latest reforms affect the poorest workers and do not lead to
creating new jobs. These policies were accompanied by reforms in the pension systems
for which the IMF had called, as well as freezing wages in the public sector and fiscal
adjustments. He concluded that the Colombian trade union organizations might mobilize
the population on the streets if the new fiscal adjustment ignores the social challenges.

The open and final discussion between trade union participants and the World Bank staff
from various regions and sectors focused on the future involvement of the World Bank in
labor market policy and reform. World Bank staff pointed out that promoting the
importance of labor market reforms and developing a constructive dialogue with local
trade unions and international union organizations are crucial but difficult tasks.
Internally, WB representatives managing social protection and labor market issues have
promoted greater trade union consultation both internally to other staff and with
government clients.




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Gordon Betcherman concluded that in response to the recommendations from Mr.
Wolfensohn and the senior management of the IFC, as well as in response to the dialogue
with the unions, the World Bank has made a commitment to the following initiatives:

   · The World Bank will focus in the years to come on a project to increase its
       understanding on the relationship between core labor standards, job creation, and
       poverty reduction in low-income countries in Sub-Saharan Africa. The unions
       will be involved in this project, as well as other stakeholders such as local
       ministry staff, research institutions, and the ILO.
   · The International Financial Institutions (IFIs) will try to improve their monitoring
       of the situation of labor market reforms and see where unions are/are not satisfied
       with their involvement in the consultation process.
   · The World Bank will continue to seek opportunities for staff exchanges
       (secondments) with representatives from unions to the World Bank.
   · Following on from Lawrence Egulu's work on trade union participation in PRSPs,
       with Bank will seek ways to continue to monitor and build capacity of unions to
       be meaningfully engaged in PRSPs.
   · The World Bank and the Social Protection unit in particular, will pursue efforts to
       develop a labor market strategy, including widening institutional knowledge of
       job creation in economically and sustainable ways such as consultations with the
       union movements.

The unions, while expressing their positive reactions to these commitments by the WB
added a number of concerns that they wish the WB to address:
   · Trade unions often encounter a wide gap between policy directives of the WB,
       insofar as labor-related matters are concerned, and what actually occurs at the
       country level In light of this, the WB should put in place a system for monitoring
       Bank staff's involvement in labor market reforms on the national level.
   · It is imperative that unions be part of national processes of labour market reforms,
       and changes to labor regulations must be accompanied by improvements in social
       safety nets.
   · WB and IMF staff frequently pressure countries to introduce decentralization of
       collective bargaining, even though the Bank's own research evidence has proven
       that there is no correlation between decentralized bargaining and development
       outcomes.
   · The intention of the IFC to introduce core labor standards as lending conditions is
       a welcome development but other divisions of the World Bank Group could do
       more to promote observance of CLS within their purview as provided by current
       policy, such as the inclusion of assessments on observance of CLS in all IDA
       CAS.
   · The trade union organizations would like to participate in the development of the
       World Bank's Labor Market Strategy, including commenting on drafts and
       meeting for further discussions.
   · Trade unions requested that research should be done on the link between
       deregulation of the economy and changes in employment and labor conditions.



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   · Trade unions are very interested in becoming more involved in the PRSP-process
       and underline the need for resources to be made available in the PRSP countries
       so as to allow for more effective participation of unions.

The closing session and open discussion summarized the proceedings of the three-day
meeting and reiterated the importance of continuing dialogue among IFIs, trade unions,
and other country-level stakeholders.




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