In general, it may be said that labor legislation can’t work. Such kind of artificial rules only create illusion and the real life goes on in a parallel space. Also, it very much depends on what one understands under the term work.
Labor laws destroy labor market and support discrimination not only of the buyers of the labor, but also its sellers. The economic outcomes are very costly. Contemporary leftists cannot even imagine how much regulated it was, how many inspections existed, and still, how disregarded could be such a legislation in the Soviet Union.
Nowadays, in Georgia, labor relations are at the same level as everything else. The problems we have are coming mostly from the lack of experience (for instance, in terms of creating a fair and impartial judiciary) and low level of incomes, but not from the illusion that the labor needs more regulations.
In the market, a labor relation is about an agreement between two people – one sells and another buys the labor resource – namely labor service, specific skills and knowledge, and their use.
Other legislation already regulates the rules of agreements, ways of disputing, and denouncing of them (for instance the Civil Code). So, special legislation in the sphere of labor relations cannot create any additional benefits, but mostly costs.
Somepeople claim that labor activities are of a special type and differ from any other activities.
For instance, if a worker works at a factory, it must be mandatory to give them a vacation and issue other guarantees. But if the same person starts their own business and sells apples in the street, or drives a Bolt taxi – then there can’t be any guarantees. This business (and any other self-employment) has no character of a labor.
For the leftists (and not only the extreme ones) any argument in defense of property rights also doesn’t mean anything. In fact, an employer has a full right to use their money to buy any labor, hire and pay whom theylikes more, decide how to use most efficiently their knowledge and labor skills.
In order to show the issues related to the labor regulations, let us take an example of the football business. In Georgia, we were not able to make football a normal business. Quite the opposite, budgetary subsidizing of this sport is to be blamed for this shortcoming, which is why it became a fully socialist and, therefore, defective business.
That’s why we recall Spanish, English, Italian, French, Dutch, and German (and also, U.S.) football and European Champions’ Ligue when thinking about football. This is grand football and big business, with big money, with the contracts of some of the most distinguished players costing millions of euros.
The football club is quite similar to a typical company. A club has its owners, managers, employees, and, most importantly – customers, namely football spectators.
In contrast to many other businesses hired footballers are under constant monitoring: any interested person knows their conditions and capacities. Moreover, footballers are most transparently visible while playing (and training). Many spectators (customers) can see what are each footballer’s capabilities.
Especially important is efficiency – the result. Owners and customers of a club (a business) demand a (positive) result and are not happy to pay if it does not materialize (this is exactly the difference between English and Georgian football).
That’s why everybody closely observes the capacities and performance of footballers. The price of their contracts is tied directly to their productivity.
Any highest ranking player can be fired from their club if their efficiency/productivity is questionable. If the managers of the club still continue using the services of the inefficient player, they can very easily lose overall productivity and, therefore, funding (i.e. customers’ payments).
As a result of the loss of efficiency (and funding/payments), the investors/owners of the club will lose their money, while the customers lose their chances to watch an entertaining game.
But bad results cause financial problems also to the players. Firing a badly playing (working) footballer is in the interest of everybody, including other players, whose reimbursement is dependent on the overal performance and the financial success of the club.
Or, in the case of football, nobody doubts that a contract of a footballer is as important as the quality of their performance. Noone would think to demand further employment of the badly performing (working) player (worker).
In a conventional business, the success of a company is very much reliant on the productivity of the workers/employees. Any inattentiveness and inefficiency can be fatal – for instance, because the competitors would not make the same mistakes.
The customers quickly make decisions and shift to the services of other firms if they find that some representatives of a firm served them badly, and they are damaged.
Bad performance of one of the workers in a company can be more difficult to discover than in a football club. The performance in an office is less transparent than in the case of a football club, especially if the company is much bigger than a normal football club.
Therefore, the danger that a performance failure will be discovered relatively late is high. This creates a strong incentive to make fast and flexible employment decisions by the management. Any delays in this regard can be very costly to the company – not only to its managers, but also to owners, customers, and other better-performing employees.
The job of a badly performing/unproductive employee (player) is demanded by other job-seeker, though their chances can be limited by the labor regulations. Their potential can be also diminished because of degradation.
A worker who remains employed artificially also gets no incentives in this situation – they cannot be fired, therefore, they will not care about improving their productivity and quality of performed work.
The company is also damaged in a different manner – it doesn’t get a chance to develop, to become healthier and competitive.
Several thousands of companies which obey such rules cannot improve and become producers of low-quality goods. The whole economy would then underperform (don’t forget about foreign competitors who can use this failure for their own benefit).
It is clear that if in the Spanish football (Spain is recognized as one of the most regulated labor markets and as a country with one of the highest unemployment rates) the same rules as those applied to ordinary businesses were in place, many best teams (firms) would face a financial crisis because of a drop of the quality and the level of performance and delayed development, and so the whole football business would be behind and might thus lose investments and customers.
As an extreme case we can consider that a failing player has a difficult family situation (the father is ill) and desperately needs to play to earn money, even though this may lead to a loss (defeat) of his team.
However, in such a case emotions cannot outweigh the need for a pragmatic decision, because it may lead to damaging the team (company). Nobody would want to create the risk of repeating such a threat because of such a precedent.
Similarly, let us consider the case of a football player who injured their leg and can no longer pursue their carrier. Probably, the club would offer a good compensation, while insurance would cover rehabilitation. But neither would any club want to keeps such a player on if their physical condition might bring no good results, nor could the labor legislation save him.
Needless to say, when it comes to wage inequality, hiring and firing rules, guaranteed vacation and other guarantees – these must be either organized smartly by the managers (better than their competitors), otherwise the club will face huge problems – as it may simply be unable to afford hiring the “stars” anymore.
All actions are oriented towards results. Nobody needs a club without results, just like no one needs unqualified companies, and no customer needs to watch a bad-quality game.
The same happens with any business – people are interested in and need quality products and not equal, privileged, and “safe” employees.
Competition provides much higher privileges to employees if their qualifications and skills (the quality of playing in football) improve the business (the results of a club). This is true for any business – either the company ensures high quality, and then come success, profit, and high wages, or it must prepare that low quality would lead to failure, financial losses, bankruptcy, and unemployment.
Back in Georgia, the 2017-2018 Global Competitiveness Index of the World Economic Forum revealed that 17% of the representatives of 100+ most successful Georgian businesses recognized that major problem that business in Georgia faced was “inadequately educated workforce”; 10% mentioned “poor work ethic in national labor force”, which ranks fourth in the list of 16 problems (in total 27%).
The real life is simpler – an employer needs to examine from 100 to 200 candidates to hire one qualified worker. In many cases, operations of a company can be hindered due to late-comers and absent employees who always have several “very serious” reasons.
In such conditions, a flexible and severely competitive labor market is the necessary environment that can provide employers and employees with information about demanded jobs, quality, skills, behavior, and price.
The market must timely and efficiently reveal good and bad quality, thus creating and sending signals to induce appropriate changes and reactions (these signals are necessary also for education activities).
The terms, conditions, price, privileges, and guarantees of labor must be considered in the scope of a contract. Labor relations must be very simple, and the choice – free.
The football business also shows well how underestimating a well-performing and efficient player can bring other costs. The player may either simply leave for another team, or, if restricted with a contract – underperform to the level only required by the payment.
In many cases, the employers have less contractual power than the well-performing professionals. Moreover, many football players may have improved skills playing for a given club, but may leave it and get better salaries somewhere else.
Even if the contract restricts such an “escape”, the former club would be forced to let them go – otherwise, this can be costly due to underperformance or higher salaries. It is, therefore, better to find a less costly substitute in time and help them develop in the meantime. Only good management can bring outcomes.
For a private business, a private employee, or a nation, success can only come from multiplying productive businesses and competitive specialists – employees. It will never be the result of hindering the employers’ decisions and granting employees privileges and guarantees they may not even deserve.