Venezuela Freezes Firing: Employers Cease Hiring

EspañolOn December 6, President Nicolás Maduro signed the extension of the firing freeze, as a way “to secure” employment stability in Venezuela. This measure applies to all public and private-sector employees and aims to protect workers from the so-called “economic war.” This may be a step forward for socialism in Venezuela, but it’s a step backward for economic growth in a country where even the official inflation rate surpasses 40 percent.

This is the 19th time the decree, which makes it almost impossible to dismiss an employee, has been extended. In fact, it has been applied since 2002, when Chávez’s regime suffered a coup d’etat and almost faced its end. This “benefit” from the revolution applies to those whose monthly salary is less than three times the minimum wage — 93.5 perecent of the working population in 2011 — although senior managers and directors aren’t protected, regardless of their wages.

In a broadcast through state media, Maduro said “the fact that we protect employment stability can’t be interpreted by any union as a promotion of laziness, misdirection, or disobedience towards work. We are protecting the one who works from the abuses of those who exploit.” Businesses, however, would disagree.

Instead of promoting productivity and competition, this measure has eliminated those two key factors that distinguish any successful economy. Let me paint the picture of what the labor reality is like in Venezuela.

Employees have job security for a year (the duration of the decree). In other words, companies have a very hard time laying off someone during that period. Given the extensions, though, those in power have not allowed the prohibition on firing to expire for anyone hired since 2002.

This means the only employees who actually work have a natural inclination or are interested in keeping a good professional reputation. Many use this political maneuver as an excuse to stay home and not go to work or to perform at the most mediocre level. After all, this is socialism and the worker is always right.

What has been the response of the employers so far? Very simple, businesses just don’t hire people unless they are absolutely critical — even if this means to overload the employees they already have with more work, or to make the company less productive.

If they choose to lay someone off, they have three options:

  • The first way — the legal way — is for the company (a.k.a. the capitalist monster) to ask for permission from the labor inspectorate in order to dismiss a certain employee. Then, the labor inspectorate, a government body in the socialist regime, will determine whether or not the company can proceed.
  • The company can fire the employee without the decree, but the employee (a.k.a. the abused worker) can report this incident to the labor inspectorate. Then the company faces a penalty, and most likely will have to give the job back to that employee.
  • The other way — also illegal, but the most common — is for the company to pay a large sum of money to the employee and “suggest” that he sign a resignation letter. This one also entails a risk for the company, since the employee can easily report this practice and make the company face legal consequences.

Has this decree has worked? Yes and no, depending on your goals.

The regime is still in power, despite its terrible economic management skills, declining levels of approval, and an absent leader (Chávez). So we can say this measure has helped to solidify an illusion of “normality” in Venezuelans. When any country enters into an economic crisis — and Venezuela is already there — the first thing companies do is lay off people. Workers don’t feel the consequences “that much” because they have superficial job security.

On the other hand, this has worsened the economy; inflation is a ticking bomb; the climate for doing business is plummeting; and the regime still wants everyone to believe they are open for private investment.

Maduro called upon investors “to have a concept of loving the fatherland,” and to bring their dollars to invest in the country. Why would anyone in their right mind invest in Venezuela? There are no institutions or rule of law to protect investors or employers; you have to face immense foreign currency (CADIVI) and price controls; there is insecurity, corruption, a ridiculous number of taxes, and a lack of basic services. Then, let’s not forget, the firing freeze decree. We are not number 140th in Forbes’ Best Countries for Business for nothing.

A lot of international corporations keep their offices open, because all their value is locked-up in the country due to CADIVI. Others try to at least survive, and there are those adventurous ones who are willing to take the risk and invest in a little cronyism with this socialist paradise.

The regime, however, has maintained its savior rhetoric — that they are the ones who protect the helpless worker from the capitalist monster. The reality is that an economy cannot be run without that “evil private sector,” and even the state-owned oil company recruits private help.

Unfortunately, workers have in general bought the story of “exploitation” and mistakenly believe they are the ones who end up winning with this decree, when it is just the opposite. If the company loses, the employees lose as well.

Even though the government may have achieved another short-term political gain — some electoral points and more time in power — the long-term harm will be severe. One thing is for sure, every time this “revolution” rolls forward, it imposes a greater economic cost for businesses and citizens, whether it is through taxes or the rising prices in their daily lives.

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