A cadre of economic policy makers are taking advantage of the democratic deficit induced by the urgent nature of the economic crisis to push through structural reforms to labor protections, pensions programs, public services and other socially-useful regulations, which they argue are desperately needed to create the conditions for investment, economic growth and employment in economies facing an enduring slump. Growth, they argue, requires a larger private sector, which means to them a smaller public sector. The package of preferred reforms tends to involve a weakening of labor protection laws and collective wage bargaining systems, deep reforms and privatization of public pension systems, the privatization of public services and so-called ???entitlement??? reforms, including slashing of legally-sanctified social rights programs such as healthcare, social security and other social protections like unemployment insurance. The new conservative government of Spain, for example, coupled historic cuts to social services and infrastructure with reforms to make workers more precarious by making it easier for employees to fire them. In Italy, the ECB instructed the government of its support for the privatization of local water services, just months after a public referendum refused the idea. The ECB also demanded that the Italian government ???design regulatory and fiscal systems better suited to support firms' competitiveness and efficiency of the labour market??????code language for undercutting the most basic of workers??? rights protections.
Did you know? Reality Check
There is in fact no evidence that gutting labor protections, decreasing worker wages or stripping unemployment guarantees will benefit the broader economy at all, let alone increase the amount of employment in a crunch. Quite the contrary. Employment protections and union density have consistently decreased across rich countries, according to the OECD, hitting historic lows in the lead-up to the crisis, and driving increased wage inequality. In fact, wages have been dropping for decades prior to the economic crisis, with new evidence from the IMF suggesting that it was precisely the inequality in earnings in the US which fed the financial instability leading to the 2008 crash to the begin with. According to this line of inquiry, stronger wage equality, labor protections and collective bargaining power can stimulate purchasing power and demand, and actually help prevent future financial crises, suggesting precisely the opposite conclusion of this erroneous myth. As preeminent labor economist Richard Freeman writes, ???The best summary of the data???what we really know???is that labor institutions reduce earnings inequality but that they have no clear relation to other aggregate outcomes, such as unemployment.??? Further, poorer individuals and those who earn their income from their labor have a higher marginal propensity to spend the money they earn than corporations, richer households, and those who earn their income from investment capital. As a result, rising income and wage inequality reduces aggregate demand quite severely and thus constrains economic dynamism and inclusive growth quite significantly, according to experts.
The case for a smaller public sector, in the meantime, is by no means self-evident. Many of the countries which have weathered the storm of the economic crisis, and consistently rank at the top of human development indicators???places like Sweden, Denmark, France, increasingly Brazil???have some of the largest public sectors anywhere.
Human rights response:
As human rights enshrined in international law, governments have duties to respect, protect and fulfill rights to a decent wage, clean and healthy working conditions, to associate and strike, as well as other fundamental social rights which form the foundation of the modern social welfare system, independent of their effects on economic competitiveness in a global economy. As the UN Committee on Economic, Social and Cultural Rights???the main body to interpret what human rights norms and principles mean in changing times???made explicitly clear last month, any austerity measures or other crisis-response policies which do not respect the following types of human rights criteria can be determined, in essence, illegal. First, any policy that may impede the progressive realization of economic, social and cultural rights must be temporary and limited to the period of crisis. Second, the policy must be necessary and proportionate, in that not adopting it would put human rights at even greater risk. Third, the policy must not be discriminatory and must comprise all possible measures, including tax measures, to support the social transfers needed to mitigate inequalities that can grow in times of crisis and ensure the protection of most vulnerable groups. And lastly, the policy must identify and protect the minimum core content of the rights enshrined in the ICESCR at all times.
Hasty, imprudent attacks on core economic and social rights protections like decent wages, labor protections and pensions in a time of economic crisis adversely affect low- and middle-income households. As such, they are not only illegal in many cases. They represent sloppy, ideologically-driven and just plain bad economics.