Industrial relations aspects of public employment policy analysed

Even before Latvia joined the EU in May 2004, it was bringing its labour market policy into line with the European employment strategy. This policy has a number of industrial relations aspects, and this article examines them with particular reference to the 2003 National Employment Plan and a joint assessment paper on employment policy priorities signed by the Latvian government and the European Commission in 2003. The main industrial relations measures are aimed at facilitating the application of a new Labour Law adopted in 2002, and promoting the development of bipartite social dialogue and regional tripartite social dialogue institutions.

Latvian public policy in the employment sphere is mainly aimed at promoting employment, creating new jobs and increasing people's employability. However, various aspects of industrial relations are also an important part of employment policy, and this article examines these issues.

Background

Latvia began applying the principles of EU employment policy prior to joining the EU in May 2004. By signing the European Agreement establishing an association between itself, the European Union and Member States in 1995, Latvia undertook to fulfil the obligations of an EU Member State in the employment sphere. Then in 1999, the government adopted a framework document on the 'national promotion of employment', which provided for the elaboration of an annual Latvian National Action Plan on employment - known as the National Employment Plan (NEP) - in accordance with the EU's European employment strategy launched in 1997 (EU9711168F). The first NAP was adopted in 2000. Since that year, Latvia’s employment policy has been coordinated by the Ministry of the Economy, though the development and implementation of policies for reducing unemployment is the responsibility of the Ministry of Welfare and, under its control, the State Employment Agency (Nodarbinātības Valsts aģentūra, NVA).

The preparation of the NEPs is coordinated by the Ministry of the Economy. Representatives of the Ministries of Welfare, Finance, Education and Science, Agriculture and Regional Development and Local Government Affairs, the NVA, the Latvian Employers’ Confederation (Latvijas Darba Devēju konfederācija, LDDK), the Free Trade Union Confederation of Latvia (Latvijas Brīvo Arodbiedrību savienība, LBAS), the Union of Local and Regional Governments of Latvia (Latvijas Pašvaldību savienība, LPS), the Career Counselling Centre (Profesionālās Karjeras Izvēles centrs, PKIC) and other institutions are involved in developing the plans within their areas of authority. The NEPs are prepared on the basis of the EU employment guidelines, and essentially represent the application of European employment policy to the Latvian situation.

The NEP for each year is approved by the cabinet, usually in the middle of the year, and encompasses measures for the current and following year. The fulfillment of the NEPs is monitored - twice a year the cabinet examines an information report on the implementation of the NEP, and every plan includes a section on the fulfillment of the plan for the previous year.

A joint assessment of employment policy priorities in Latvia was signed by the Latvian government and the European Commission on 6 February 2003, setting out the priority development areas for Latvia in the employment sphere.

Employment promotion is also anticipated in Latvia's Development Plan (Single Programming Document). The Development Plan is a strategic document for utilising EU Structural Funds, the preparation of which is led by the Ministry of Finance. The third priority set out in the Single Programming Document is 'development of human resources and promotion of employment'. This area is is under the authority of the Ministry of Welfare and it is planned to use European Social Fund (ESF) funds for its implementation. The ESF is considered to be the financial instrument for the implementation of the EU employment strategy in Latvia. Its funds (totalling EUR 184.7 million, including co-financing by the Latvian authorities) will be used for two purposes: implementing the Development Plan's third priority (EUR 174 million); and a scheme under the EU's EQUAL initiative on reducing discrimination in the labour market (EUR 10.7 million). Three measures are planned under the Plan's third priority: promotion of employment (around EUR 76 million); development of education and lifelong learning (around EUR 67 million); and reduction of social exclusion and promotion of equal opportunities (around EUR 31 million). The following measures are planned under the EQUAL initiative: access to the labour market (around EUR 5.7 million); equal opportunity for women and men (around 3.6 million. EUR); support for people seeking accommodation (around 0.5 million EUR); and technical assistance (EUR 0.9 million). Employment issues are indirectly involved in all of the priorities and measures of the abovementioned funds.

The strategic documents adopted in Latvia in recent years in the employment sphere are based on the employment policy objectives set out at the Lisbon European Council in March 2000 (EU0004241F) and Stockholm Council in March 2001 (EU0104208F) - including a medium-term objective of an overall employment rate of 67% by 2005 (57% for women) and a long-term objective of an overall employment rate of 70% by 2010 (60% for women and 50% for people aged 55-64) - as well as the EU employment guidelines.

Latvia's 2003 NEP (LV0308102N), adopted by the cabinet in July 2003, is currently in force, and the 2004-5 NEP is being prepared. Latvia receives assistance in preparing the plans under the auspices of an EU Phare programme twinning project entitled 'Employment strategy', launched on 8 October 2003. The project’s objective is to support the development and implementation of Latvian employment strategy in accordance with the EU employment guidelines. The project provides for consultations on policy issues in developing the NEPs, supporting the Latvian government in their implementation, and assistance in reforming the State Employment Agency (NVA) in order to expand and improve its activities. The 2004-5 NEP will be the first plan that must be submitted to the European Commission, by 1 October 2004.

The 2004-5 NEP will take into account the EU employment guidelines to Member States for 2003-5 (EU0308205F), the recent recommendations of the European Employment Task Force (EU0312209F), the priorities and measures set out under the 2003 joint assessment paper on employment policy priorities, the Single Programming Document for 2004-6 and other government documents.

The list of employment promotion measures in the NEP has a four-pillar structure, covering: expansion of labour capacity; business development and job creation; promotion of the adaptive capacity of companies and their employees; and ensuring equal opportunity. The selection of employment-promoting measures in the NEP is determined by Latvia’s economic and social situation and future plans set out in previous NEPs.

In the NEPs, industrial relations are covered mainly under the objectives of promoting employment and creating new jobs, which are the main orientations of the plans. Below we look at measures in the industrial relations sphere set out in the current NEP, that for 2003.

Developments in 2002

The 2003 NEP states that following tasks were completed in the industrial relations sphere in 2002:

  • an inter-institutional working group was established to examine measures to reduce illegal employment (LV0402101N) and increase tax revenue (this working group developed a draft framework);
  • under the auspices of a Phare project on 'improving the working environment in private and privatised enterprises', measures were taken to improve the adaptive capacity of companies and employees. 'Social cooperation' at the company level was promoted, work safety and health protection services were strengthened (LV0308101N), and an institutional base was created for protecting workers in the event of their employer's insolvency (LV0309101N); and
  • proposals on simplifying the Labour Law (LV0405103F) were developed and implemented together with the social partners.

It is noted in the 2003 NEP that there must be more cooperation with the social partners in determining priority measures for promoting employment.

Main directions in 2003 NEP

In the 2003 NEP, the industrial relations sphere is referred to directly in two pillars:

  • promotion of the adaptive capacity of companies and their employees (third pillar) - this includes implementation of a Phare project on 'promotion of bilateral social dialogue' and assessment of the possibility of introducing flexible forms of employment contracts; and
  • ensuring equal opportunity policies (fourth pillar) - measures are laid down for improving the employment capacity of particular groups and increasing their competitiveness.

For the first time, the 2003 NEP touches on regional employment problems. It is foreseen that specific employment plans will be in place for every region, which means approving plans for regions that already have them and creating plans for regions that have never had them. It is also planned that under the 2003 NEP regional social dialogue institutions will be established.

A total of LVL 22.5 million (around EUR 35 million) is due to be spent on implementing the 2003 plan - 20% less than in 2002.

Labour legislation

The realisation of several of the objectives set out in the 2003 NEP appear to require stimulation through legislative change, but there are few proposals for such amendments. For example, the NEP's guideline 2 sets out measures for the realisation of an 'employment-friendly' approach, but does not provide for the introduction of special tax incentives for getting unemployed people into jobs. It is only recommended that employers use general stimuli such as improving the educational levels and professional qualifications of employees.

Guideline 12, under the second pillar on 'business development and job creation', is devoted to the reform of the tax system. It is planned to continue reducing the company tax rate until it has been cut by 10% (it has been reduced by 6% so far) and the total rate of mandatory state social insurance contributions by 2% (1% so far). The list of measures includes a proposal that employers’ expenses connected with the vocational training of their employees and raising their qualifications should not be subject to income tax.

It is noted in the 2003 European Commission/Latvian government joint assessment paper on employment policy that the 'tax wedge' is high in Latvia and may contribute to the 'shadow economy'. According to the paper: 'Reduction of the tax wedge should therefore be an urgent policy priority. In reforming the tax and contributions systems, particular attention should be paid to reducing the tax wedge for workers on below-average incomes.'

Institutions

Guideline 6 of the first pillar of the 2003 NEP, on 'averting factors hindering employment in the labour market' includes provisions aimed at strengthening the institutional operating capacity of the NVA. The computerisation of the NVA was started under the auspices of a state investment project in 1993. There are plans during 2004 to establish regional self-information centres for unemployed people computer centres for people with disabilities, and to develop the NVA database, using funds from the state investment programme and the Phare programme. It is planned to create a database of unemployed people and their CVs, improve the vacancies database and create a database that provides information about the national labour market situation. The NVA is included in the EU's EURES European employment services joint information system.

Education and lifelong learning

Education and training, including adult education, are considered to be the main set of measures for increasing employment, and are covered by the NEP’s first pillar. In Latvia, employers’ expenses for the training of employees are not subject to company tax, while there are partial personal income tax concessions for educational expenses.

The training aspects of the NEP encompass industrial relations and social dialogue issues. For example, guideline 1 on 'resolving the problem of youth unemployment and averting long-term unemployment' provides for training courses on employment rights, social security and social partnership issues (without funding). Guideline 4 on 'skills suited to the labour market in the context of lifelong education' provides for supporting the work of a vocational education and employment tripartite cooperation council, and the development of professional standards in conjunction with sectoral ministries, employers' and professional organisations.

Social dialogue

The third pillar of the 2003 NEP, on 'promotion of the adaptive capacity of companies and their employees', states that the modernisation of work organisation results in a reduction in the number of employees. Guideline 13 on 'modernisation of work organisation' stresses the necessity of concluding joint employment agreements and creating bipartite social dialogue institutions - the abovementioned EU Phare project is intended for this purpose. It is planned under the auspices of this project to expand a database of the main participants in social dialogue and collective bargaining, teach social partners about bipartite social dialogue and employment rights issues, and create institutional structures and mechanisms for resolving labour disputes. The guidelines anticipate the establishment of a tripartite regional cooperation network and regional social dialogue institutions.

The 2003 joint assessment paper (JAP) found that tripartite social dialogue has developed well in Latvia, but that bipartite social dialogue is weaker. Trade union and employers' organisations encompass just a small proportion of employers and workers (LV0403104F), and only 25% of workers are covered by collective agreements. Bipartite social dialogue institutions have not been established. However, the government supports greater involvement by the social partners. The 2002 Labour Law (LV0405103F) has been drawn up in such a way that it lays down only the main regulations and the 'rules of the game', leaving concrete industrial relations issues to the discretion of the social partners. The JAP states that, at least initially, the establishment of bipartite social dialogue requires government participation.

The assessment section of the JAP sets out the following desirable measures to improve bipartite dialogue:

  • 'raising the capacity of the Ministry of Welfare and National Tripartite Cooperation Council [NTCC] to extend the current coordination of tripartite social dialogue to bilateral as well';
  • 'provision, through the NTCC, of secretariat assistance and advisory support to social partners';
  • 'the government should undertake regular registering, analysis and monitoring of collective agreements and their contents to provide a useful assessment for social partners to improve the scope of collective bargaining'; and
  • 'information and training measures to promote membership of social partner organisations, and to increase social partners’ awareness of their role and their capacity to engage in productive collective bargaining at all levels'.

According to the JAP, 'at the tripartite level it will be necessary to identify specific strategies to enhance the contribution of the social partners to the formulation and implementation of employment, social and related policies. NAP 2003 does not stipulate specific tasks with regard to these issues'.

It is also indicated in the JAP that Latvia does not have a sufficiently effective system for dealing with labour disputes. 'Efforts have to be made to construct a sound system of industrial relations geared to the prevention of labour disputes'. In response to this assessment, in 2003 an arbitration institution was established whose aim is the resolution of labour disputes before they go to court (LV0403105T).

Pay developments

Providing an 'employment-friendly' work remuneration system (including tax and benefits issues) is highlighted in the 2003 NEP. The JAP indicates that it is necessary to ensure wage increases that are in line with economic development. The government should cooperate with National Tripartite Council (Nacionālās trīspusējās sadarbības padome, NTSP) to promote social partner consensus on appropriate wage developments (TN0403102S). Successful reform of pay determination in the public sector financed from the state budget will also be important, it is stated, while the impact of minimum wage increases (LV0310101N) should be carefully monitored.

Equal opportunities

The necessity of ensuring equal opportunities is mentioned several times in the 2003 NEP, though specific measures for implementing equal opportunity policy by means of industrial relations are not included.

Guideline 7 on 'reducing discrimination and promoting social equality in employment' provides for increasing the opportunities for people with disabilities to work. So far, several pilot projects on involving disabled people in work have been realised. The 2003 NEP state that an aversion among employers to taking on employees classified as 'invalids' is a major problem. Reduced social insurance rates (30.32% of the wage rather than the usual 33.09%) and employer contributions (22.08% rather than 24.09%) apply to employees with disabilities, but these concessions do not seem to prompt employers to take on such workers. However, no other facilitating measures are provided for in the 2003 NEP.

The issue of the employment of convicted criminals is also current in Latvia. There are problems with employment both in prisons and after release. The law on company taxation provides for tax concessions to companies employing people with convictions, though the 2003 NEP does not provide for other facilitating measures.

The NEP refers only to the observance of the workplace gender equality provisions of the Labour Law. In 2003 and 2004 additional rules were inserted into the Labour Law, further strengthening the framework for gender equality, in terms of equality in employment relations and sexual harassment in the workplace.

The JAP found that Latvia has barriers to the equal participation of women in the labour market. There are employed in so-called 'women’s sectors', mainly in the state sector, where wages are lower but social guarantees are higher. The JAP states that it is necessary to implement a framework developed in 2001 on ensuring gender equality. The JAP also found that people face restrictions relating to their ethnic background and knowledge of Latvian that must be resolved.

Reconciling work and family life and new forms of work

The reconciliation of work and family life is dealt with in a separate guideline in the 2003 NEP, though no specific measures are indicated. It is reported in the plan that it is difficult to find a job after maternity leave and planned training measures are mentioned, but there is no reference to an enhanced role for industrial relations in this respect.

The NEP does not indicate the development of new forms of work, except for references to new forms of employment contracts. Guideline 14 of the third pillar of the 2003 NEP refers to the introduction of flexible forms of employment contracts. Flexible employment contracts should bring in a new approach to using working time, reduce working time for particular categories of workers and have implications for pay, raising qualifications, transferring employees to other jobs etc. Information is planned for employers and trade unions on industrial relations aspects of this area in connection with the new Labour Law.

The Riga regional employment plan provides for measures to expand internet usage and remote education, but there are no references to the introduction of telework or other remote forms of work.

For its part, the JAP found that 'part-time work is less prevalent than in the EU' (involving 10% of the workforce in Latvia compared with 18% in the EU) and that: 'The difference is particularly marked in the case of women, only 12% of who work part time in Latvia as compared with 33.5% in the EU. By comparison with the EU, part-time work is particularly underdeveloped in the services sector (where 22% of all EU workers are part time).'

Commentary

By mid-2003, when the 2003 NEP came into force, a new Labour Law had been introduced in Latvia (in 2002) that included progressive approaches to employment issues, and the main national social dialogue institution, the NTSP, had been established. Therefore, the emphasis in the 2003 NEP is placed on correcting problems discovered during the implementation of the Labour Law. The plan's main measures in the industrial relations sphere are directed toward making the application of the new Labour Law easier. This involves training, explaining, increasing understanding about the rights of employers and employees and controlling the observance of the legislative norms. No radical measures are anticipated in the NEP, and currently they are probably not required. The plan envisages promoting bipartite social dialogue and regional tripartite social dialogue institutions. (Raita Karnite, Institute of Economics, Latvian Academy of Sciences)

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