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Correa’s “Citizen Revolution” Has Forgotten Ecuador’s Workers

By: Contributor - Oct 7, 2015, 12:24 pm
Ecuador's labor market remains mired in underemployment and informality.
Ecuador’s labor market remains mired in underemployment and informality. (Viajea Ecuador)

By José Ponce Jouvin

EspañolIn Ecuador, you can regularly hear people complain that “there are no jobs,” or “the salaries aren’t high enough,” and that “employers are evil and want to exploit workers.”

It takes months for young Ecuadorians to find a job: there are long queues whenever there is an opening; the subemployment rate is excessively high; and there is fierce competition in the labor market.

But what if it were the other way around? What if it took companies months to hire someone? What if employers competed to attract the best candidates? What if the unemployment rate were close to zero?

Believe it or not, this is the case in many developed countries, such as Canada, Germany, or Australia, to name a few. They need to “import” skilled workers for specific fields where there are not enough Canadians, Germans, or Australians willing to take jobs. Needless to say, salaries are high.

It is the natural consequence of a labor market actually working the way it should: all things being equal, the higher the demand of a good or service, the higher the price.

In other words, the increased demand for employees pushes wages upward. When manpower is scarce, employers are willing to offer better salaries in order to attract workers. Employees enjoy greater negotiating power, and can demand benefits above and beyond what the government sets as the minimum.

Few would say that job creation should not be a priority in Ecuador. So how can we strengthen the labor market? Complicated labor codes, endless taxes, trade regulations, bureaucracy, protectionism, and other technical barriers are not the way to do it. It’s quite the opposite.

Suitable conditions for growth can be reached by deregulating labor markets, streamlining legislation, allowing for free trade, and reducing bureaucracy. We need a regulatory environment that fuels entrepreneurship and provides local and foreign investors with security and convenience.

Ecuador, however, has been going down the wrong path since the 2008 reform of the Constitution and the subsequent changes to labor, production, and fiscal legislation. According to the World Bank’s Doing Business Report, starting a business in Ecuador took 65 days in 2007, placing the country in the 150th position out of 180 economies.

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However, seven years later, the number remained just as disappointing. In 2014, Ecuador ranked 171 out of 187 countries, and it still took 56 days to start a company. As for the ease of doing business, it ranked 115 out of 189.

What about unemployment? According to the National Institute for Census and Statistics, unemployment stood at 5 percent as of December 2007, with subemployment at 50.77 percent.

Eight years later, those numbers remain unchanged. This shows that the measures enacted by President Rafael Correa did little to spur job creation.

What Ecuadorians need is a government open to dialogue, committed to the private sector, and that encourages economic growth by setting clear rules, removing obstacles, and allowing free trade.

After all, a healthy labor force is the hallmark of a prosperous nation.

José Ponce Jouvin is an Ecuadorian entrepreneur. He studied international business administrations at Holy Spirit University. Follow @JosePonceJouvin.

Translated by Adam Dubove.