The Political and Social Economy Group has questioned a Peruvian executive branch request for legislative powers that proposes revising hiring mechanisms and labor benefits linked to youth employment.
Fernando Cuadros, a group member and former deputy minister of employment promotion, said the content of the project brings back a formula previously used in Peru of reducing hiring costs through special labor regimes to try to increase formalization.
Cuadros told the La Republica newspaper that the executive project and its explanatory memorandum refer to the high labor costs that companies would face to formally hire young people. The document also proposes a review of the hiring mechanisms and the system of labor benefits for this population demographic.
Cuadros said that formulation allows him to anticipate that the proposal could end up reducing certain benefits as a mechanism to incentivize hiring.
Youth employment and labor reform
The proposal takes on relevance because the government has linked labor reform with the need to increase formal employment among young people.
Labor Minister Juan Sheput has said that a potential labor reform must allow more young people to access formal jobs with health coverage and pension protection.
Sheput stated in July that he would again defend the youth labor law known as the Ley Pulpin. Law 30288 created a special, temporary labor regime for young people aged 18 to 24 in 2014, with specific rules that differed from the general labor regime.
The legislation sparked protests and was subsequently repealed in 2015. Cuadros said the reference to the Ley Pulpin was not a coincidence, and he believes the current project could advance towards a similar scheme once again.
Cuadros added that the youth employment problem would not be resolved solely by reducing labor costs, noting that these types of schemes had already been applied in Peru through various special labor regimes implemented since the 1990s.
According to his analysis, the existence of modalities with lower labor costs failed to substantially modify informality in the country.
He said that insisting on that tool without addressing the characteristics of the Peruvian economy would leave the structural causes of low formal salaried job generation unaddressed.
The central point of his argument is that the Peruvian economy has a productive structure concentrated in primary activities, while a significant part of the services sector presents low productivity and concentrates independent workers.
In that context, Cuadros said a policy oriented exclusively towards making hiring cheaper would not be enough to generate formal jobs on a large scale.
Subsidies as an alternative to benefit cuts
As an alternative to reducing labor benefits to make youth hiring cheaper, Cuadros proposed that the state reduce the cost without diminishing their labor rights.
The alternative included in the Political and Social Economy Group analysis consists of establishing economic incentives for micro and small enterprises to incorporate young people onto the payroll under formal and stable conditions.
Micro and small enterprises, known in Peru by the acronym MYPE, make up the vast majority of businesses in the country.
The proposed mechanism would be a partial and gradual subsidy to the contributions that employers and workers make to social protection systems.
Cuadros proposed subsidizing the 9 percent employer contribution to the EsSalud social health insurance agency, and the 13 percent worker pension contribution.
He said this would operate under a scheme that should be defined according to targeting and permanence criteria established by the policy.
The condition would be that the enterprises hire the young people formally, on the payroll, with all their labor rights.
The subsidy could be greater when the hiring is stable and smaller when it involves temporary jobs that require that modality due to the nature of the activity.
Cuadros emphasized that the proposal aims to reduce the cost faced by the company without transferring that adjustment to the worker, meaning there would be no cut to labor benefits.
The approach also incorporates a specific component for young women, due to the greater difficulties they face in accessing formal employment. The subsidy could include an additional incentive for companies that hire young women under the established conditions.
Public resources and gradual implementation
Unlike a permanent reduction of labor benefits, the proposal assumes that the lower cost for companies would be compensated with public resources.
The contribution that employers or workers would stop making, within the subsidized scheme, would be covered by the Public Treasury.
Cuadros said the mechanism would need to be designed in a targeted and gradual manner to avoid the benefit ending up subsidizing hires that would have occurred even without the incentive.
He said it would be necessary to establish conditions related to age, company size, duration of the employment relationship, and the stability of the contract.
Cuadros added that a youth employment policy should form part of a broader productive transformation strategy.
His proposal includes promoting industrialization and economic diversification processes capable of generating activities with greater productivity and demand for salaried workers.
The analysis by the Political and Social Economy Group does not limit itself to questioning the labor content of the request for legislative powers.
It also proposes a concrete alternative for youth employment, using public resources to temporarily reduce the formalization costs for micro and small enterprises, but conditioning the benefit on the hiring of young people with formal, stable employment and full labor protection.
