LABOR RELATIONS IN THE ERA OF INTEGRATION:

ECONOMIC ISSUES MORE THAN SOCIAL ONES

MPS. DANG THI HAI HA - FOUNDER OF RESPECTVN

PUBLISHED ON TIA SÁNG MAGAZINE 

​ON JULY 20, 2019

  1. Labor obligations in Trade Agreements: Execution of unprecedented issues

  2. Cost of conflicts, disputes and unfair competition

  3. The capacity of conducting surveys as policy inputs

  4. The capacity of supervising policy enforcement 

LABOR RELATIONS IN THE ERA OF INTEGRATION:

ECONOMIC ISSUES RATHER THAN SOCIAL ONES

Recently, a number of amendments have covered in the draft revised Labor Law, mainly revolving around the "traditional" aspects such as minimum wage increases, increased/decreased overtime hours, increased/decreased retirement ages, added/reduced numbers of annual holidays. However, in the context of Vietnam participating in many "non-traditional" trade agreements, some emerging issues such as labor relations, organizations representing employees/employers, transparency of information, etc. have not yet discussed thoroughly. According to Ms. Dang Thi Hai Ha, an independent expert on labor relations and organisational development, these are not only social issues but also economic issues, directly affecting the economic benefits of the employees and the sustainable development of enterprises.

Execution of unprecedented issues

The above-mentioned have been known as significant issues in the final round of negotiations before Vietnam signing the CPTPP and also the EVFTA with Europe. In the context of such new trade agreements, which are the new requirements for Vietnam to adjust national labor policies?

"New-generation" trade agreements such as CPTPP or EVFTA require Vietnam to ensure sustainable development with the expectation that trade and investment balance or harmonise with social goals and environmental protection. Particularly, with regard to the labor issues, priority has been set on fundamental international conventions, covering rights to freedom of association & collective bargaining of employees and employers; abolition of forced & compulsory labor; prohibition of using child labor, elimination from the worst forms of child labor; removal of all forms of employment & occupational discrimination, etc.

For many years, these have been fundamental contents making inherently "commercial" agreements more complicated. Developing countries like Vietnam, for example, in order to benefit from these agreements, must ensure to ratify as well as effectively implement the unprecedented standards. They are Convention 87, 98 and 105 (rights to freedom of association, collective bargaining and elimination of forced labor) which have not been ratified by Vietnam. Moreover, the understanding of Vietnam & the rest of the world with regard to these standards are different. In the world, freedom of association means that few individuals are able to establish & register their own organisation meanwhile in Vietnam how is this standard written reasonably? Adjustment is necessary because the individual's rights to life and security must be prioritised against rights to freedom of association. Even after the US was attacked on September 11, they also had to adjust and tighten the right to freedom of association to protect the human right to life against organised acts of violence.

Recently, the issue of "representative organisations of labor/employees" and "those of employers", has also been proposed in better details in the recent draft of the revising Labor Law. In my opinion, this is a huge progress that Vietnam has made where strong statements such as "representative organizations of employees established under the provisions of the Trade Union Law and Labor Code on equality of rights and obligations in representing the legal rights and interests of the employees in labor relations” have been made. In addition, the Draft also clears the procedures for establishing representative organizations, requirements on organisational leadership, prohibited acts to protect the representative organisation of employees, etc. I think it is also one of  important reasons why EVFTA was approved last month. However, it is necessary for the criteria to determine who are effective representative organisations, how to bind them with responsibility of effectively protecting labor rights and transparency of operational information, etc. need to be added.  Also, the question whether the "equality" really exists between the representative organisation of employees under the Labor Law and Trade Union Law or not given the "upper-level" organisations' role is not mentioned in the draft as well as the individual leader of the representative organisation must be "working" in the enterprise and still financially affected from employers will be the most important issue and gets international attention.

The next problem is collective bargaining as already specified in the labor law, such as every three months, each enterprise has to dialogue with the employees for the higher requirements in the collective bargaining agreement (CBA) compared to the laws. However, for the enterprise with about 50000 people, how to dialogue? Does the new regulation on the role of the employee's "representative organisation" in collective bargaining improve the situation? Especially, how to make more employees truly understand what collective bargaining is for? And how to make employers better aware of how 50000 employees really want, when they can negotiate and when they go on strike? Many countries stipulate the obligatory collective bargaining agreement, but if either party violates its terms, it is possible for employees to strike or stop working or for employers to close production to put pressure or better negotiate for their own terms. At present, the negotiation mechanism is still separate from the  dispute and strike settlement regulations, so  that the actual negotiation between the parties or CBAs 's better requirements are unlikely to occur.

Cost of conflicts, disputes and unfair competition

​It seems that what you just discussed is purely "social" issues where fairness and equality in labor relations must be ensured. They seem to have no impact on economy. Is there any way to measure these effects on the economy? Which aspects do enterprises and lawmakers need to realise in terms of economic costs of enterprises as particular & costs of the economy as the whole?

You are right. This is not only a matter of human rights and social welfare but also a purely economic one. Let’s take a look at some numbers that speak: among 6700 labor inspections last year, up to VND 32,234 billion (approx. USD 1.2 billion) was the fine collected from labor violations and the amount of VND 187,086 billion (approx USD 8. billion)  was proposed by the labor inspectors to collect (note that they are violations of the existing Labor laws, not the amended). It is noted that wrongdoings increase very quickly with evidence that the number of violations increased by 335% compared to the previous year. Currently, in documenting workplace conflict cost investigation in about 100 enterprises, we calculated the number of daily conflicts, the duration of such conflicts, the economic loss of cost opportunities. The conflict cost, therefore, takes about 25-50% of enterprise operation cost. This cost comes from poor governance, poor compliance, increased unfair practices, big gap in perceptions, etc. If in a new context, many new regulations are not clarified, what happens to such numbers? All conflicts in a labor relationship must be made into the cost. All issues revised by the labor law and their impacts on job quality, business results and commercial cooperation are well related. 

The current discussions on the labor issue, however, seems to be still on the tip of the iceberg, highlighting that labor issues are a social ones, mostly creating a social common sense instead of economic impacts. Every year only the decrease or increase of minimum wages, the premium for social insurance, the number of overtime hours, etc. are debated. Such core issues as labor dispute settlement, labor conflict costs, etc. that both sides (employers & employees) concern at work, however, have not been focused. 

Let’s take a look at the cost of a T-shirt with made in Vietnam (see the right picture): For example, the price tag of the T-shirt says $ 29, meanwhile only 25 cents are spent as labor cost, namely salaries or allowances. This cost is too small, yet how to raise it up to better benefit workers has been mainly discussed. The conflict costs, resulting from low efficiency, poor productivity, low-performing teams, constant disputes, poor compliance, unmeasurable returns on investment, window-dressing CSR,  etc. which can occupy 25% -50% of total investment costs, have been not discussed unfortunately. 

Particularly, for this shirt, besides the production and retail cost, the enterprise on average spends about $ 12.5 on business misperceptions or communications, arbitrary corporate governance, sentimental labor management, discretionary investment decisions, failed marketing, client development or CSR efforts, window-dressing solutions to conflicts, strikes, litigation, etc. (for example, a large number of suppliers for international brands have spent millions of USD for labor audits, training, consulting, worker engagement as CSR activities. However their impacts are still in question with regard to workers' rights, economic benefits as well as the efficiency of the very production chains as requested by the international standard makers. Lastly this cost which takes away at least 25% has been not specified or not clearly shown on the balance sheet.

It is important to determine the conflict costs. In the US, it is calculated that all businesses take about 2 hours per week to handle workplace or organisational disputes and conflicts. Accordingly, the economy will lose nearly 400 billion dollars per year (Inc.com). In Vietnam, as roughly assessed & calculated, at least 2 hours a day are spent on conflict resolution. If based on the current lowest minimum wage, the economy might loose at least USD 12 billions, or almost USD 20 billions if based on the average wage (The majority of our surveyees believe that the second number makes better sense as legal violation fee being already 8 billions).

 

Therefore, more thorough studies must be conducted for the better alignment between three most important objectives - economic (competition), social (welfare), and industrial peace (goals to minimise conflicts & disputes)  (See Figure 2 below - The divergence & convergence of the 03 wheels - logic of actions by Sarosh Kuruvilla 2000). The convergence occurs when the three goals or wheels align. The divergence occurs when the three wheels push each other away. By more focusing on industrial peace, conflict resolution or simply conflict cost, the relationship between economic growth & social protection might be better defined in practices. Legal standards there are better interpreted & enforced. Fairness or justice therefore is better achieved. 

The capacity of collecting data for policy development

To evaluate and clarify all the things mentioned above to set up the appropriate framework for the new situation, where should we start?

We usually carry out large-scale evaluations or surveys to collect data for policy development processes. However, in fact, there is a nature conflict or gap in terms of perceptions between employers & employees. That’s the reason why labor policies and social works often face disagreement among public opinions, and even between the experts. In our opinion, it is necessary to collect real-time data or cases in legal violations, workplace disputes, organisational crises, attempts to resolve conflicts, how to make remedies in violations, etc.. These real-time data will speak out what truly is going on in workplaces, which not only suggests better policy changes but also give better insights and rootcauses for enterprise solutions. The current discussions or debates are mostly sentimental with regard to how workers are exploited, how enterprises violate laws yet very little on how to make them solve conflicts in long terms, how to align their shared interests and values by complying with laws and standards.

 

In reality, many businesses that are very lawful yet being less competitive compared to violated ones, many employees that are irresponsible & lazy yet being protected as much as one needs protection. The labor markets in Vietnam therefore have been more loose & deregulated than ever. If we want to learn from any socio-economic models from any other countries, most of comparison become irrelevant due to lack of reliable data & valid information. When large-scale & fully representative surveys are too expensive to afford, at least real-time typical case studies & highest public concerns should be taken into account seriously. 

For example, the calculation of the minimum salary must consider whether it affects the real income of the majority of employees, or whether enterprises comply with or take advantage of loopholes or systematically violate? If companies comply with minimum wage policies but raise production targets & cut allowances or bonuses, how can employees increase their real income and their actual productivity, teamwork or committments? We have piloted a different approach for labor audits on actual compensation budgets in order to clear this up. Supposedly, if an enterprise does well, pays its taxes fully, and the number of employees increases, the compensation budget must increase simultaneously. In fact, it is uncontrollable, the salary fund still remains or lower. If trade union or a labor representative organisation is able to negotiate the real income increases, they must have capacity and knowledge to negotiate all the issues relating to income and employment such as how labor contracts are implemented, how overtime is paid, whether pay is related to productivity, etc. Nowadays, too many violations such as double-contract for tax evasion, social insurance avoidance, illegal dismissal, baseless performance evaluation, etc. have been ongoing and significantly affecting the real income of not only the lowest level of wage-earners, middle and senior managers, including foreigners working in Vietnam have been badly affected. Accordingly, the enterprise itself is also significantly affected by costly strikes, lawsuits and penalties for violations, especially low productivity, poor cooperation, downgraded efficiency, lost business opportunities and damaged business reputation. This is the reason why daily conflict costs have directly impacts on the business growth & economic health which has not been prioritised by lawmakers.

Simply, it is possible to describe the issues to be adjusted in the labor law in compliance with local business practices and international trade cooperation through the model below (Figure 3). In this model, the large outer circle consists of 10 blue boxes outside showcasing 10 Chapters - the Code aspects have been mostly discussed - in the Labor Law. The lawmakers and enterprises, to significantly improve the law enforcement and its impact on labor relations at the enterprises, need to pay more attention to 05 white boxes in the inner circle.

These are the current chapters on Labor Inspection, Dispute Settlement, Negotiating Dialogue, Representative organisation of employees and employers, and especially the middle yellow box - Labor Relation data/information. These are cross-cutting issues, having direct impacts on the remaining Chapters in reality, no matter how significantly revised the law texts are. These aspects, once reformed comprehensively and implemented effectively in practice, can ensure the obligations on employment and sustainable development that Vietnam is required by new-generation trade agreements.

However, at present, in Vietnam, the number of labor experts and economists with the relevant capacity is limited. We must develop talents who can "interpret" these complicated issues or global models into Vietnamese ones with simpler & more coherent languages.

The capacity of supervising policy enforcement 

Strengthening the evaluation capacity and input data supply is a clear requirement, so what about the capacity to supervise enforcement?

Law enforcement supervision heavily depends on labor inspection. However, labor inspection is limited in numbers & overloaded. The International Labor Organisation has calculated that it takes several or dozens of years for labor inspectors to return to inspect a SME enterprise the second time. Labor inspectors are called "paper tigers" because they only make decisions on administrative penalties, but hardly "deter" or "punish" the violating enterprises. Previously, an international consulting organisation, upon realising labor inspection problems, suggested the use of enterprise self-assessment forms for labor inspectors to identify labor violations. However, this is not good. Unless we look at business performance, compliance level with legal provisions or internal conflict resolution mechanisms, the number of disputes or attempts to resolve those disputes, we fail to know the relationship between employers and employees. Employees' complaints and grievances are also another major burden of labor inspectors, while it should be an important input to identify violations at the enterprise. Private inspectors (labor auditors) assesses labor violation at a very high cost, approx several thousand dollars for an audit with several conducting days, however only identify 50% of existing risks.

Therefore, I think it is necessary to strengthen the capacity of public inspectors by providing them with better means, better technology, more comprehensive assessment tools and better mechanisms to ensure the quality of data, the effectiveness of inspection. This allows more powerful "tiger fangs" to labor laws. On the other hand, administrative works of public inspection should be reduced and public-private coordination should be enhanced in law enforcement. For consultancy and dispute settlement, there should have private consultants, private mediators, private inspectors, instead of giving too much burden on the shoulders of the Government.

These substance must be discussed & included in the revising Labor Code otherwise workshops, conferences & debates will never end. They are also some sort of conflict costs. If this cost can be converted into effective reform decisions it will become a benefit to the economy and society. If it only stays as arguments or become ineffective or hard-to-measure-impact projects, it will increase the cost by a dozen or hundred times.

Thank you for your sharing!

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