The Big Discussion at VoxUkraine: Liberalisation of Labour Law

What do VoxUkraine economists think of Lyashko’s ideas on labour laws



“The draft memorandum with the IMF refers to “removing restrictions in the Labour Code”, “limiting protected categories of employees”, “revision of the Labour Code to exclude strict rules”, and others.”

Explaining the unacceptability of such changes, Lyashko refers to the example of Britain in the early 19th century, where child labour was limited in cotton mills, which was the restriction of the free market. Comparing Britain 200 of years ago with modern Ukraine is incorrect. Britain moved from complete lack of restrictions in the labour market to introduction of the minimum restrictions. In Ukraine, the situation is quite the opposite — the labour market has been highly regulated since Soviet times (the Labour Code was adopted in 1972). Back then, the state was the sole employer, so instead of creating competition and improving working conditions it introduced more privileges for chosen categories of workers. The downside of this “super protection” of employees is unemployment (an employer won’t hire an employee who won’t be easy to fire in case of economic difficulties) and informal labour market — contract work or even verbal agreements — where workers are not protected at all. Moreover, due to the weak legal framework and total corruption in the judiciary, most restrictions of the Labour Code have no real effect.

In all socially oriented countries listed in Lyashko’s article (Norway, Denmark, Sweden, and Finland), labour law is much more liberal than in Ukraine. For example, they have no legally established minimum wage. They don’t have many other restrictions existing in our Labour Code, according to which it’s very difficult to fire an employee. However, the most important is that Ukraine shouldn’t be compared with developed countries with high income level, but with them at the time when their income level was comparable to the current Ukrainian one or to the countries with similar level of development.

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