Ecuador to Introduce Unemployment Insurance to Protect Workers

Source:  TeleSUR
February 25 2016

ecuador to introduce unemploment insurance.jpgNational Assembly President Gabriela Rivadeneira (C) receives the proposed bill from Labor
Minister Leonardo Berrezueta alongside IESS head Richard Espinosa, Quito, Ecuador, Feb. 24, 2016.
| Photo: Ecuadorean National Assembly

In the event that a worker is laid-off, the new unemployment insurance program will pay out a percentage of their wage for five months.

Lawmakers from Ecuador’s National Assembly formally began analyzing a new bill Wednesday that will create unemployment insurance for millions of Ecuadoreans, which will provide relief to workers who are laid-off as a result of external economic factors in the region that threaten to negatively impact the employment rate.

Countries throughout Latin America, including Ecuador, which are still largely export-oriented, benefiting from high oil and commodity prices that helped lead to healthy economic growth for a decade. However, the region has been subject to a number of external shocks, such as the economic slowdown of China, a major trading partner.

The dramatic drop in the price of commodities

In the case of Ecuador, the dramatic drop in the price of commodities, particularly oil, has generated a difficult economic situation for the country. Ecuador also does not have its own national currency, adopting the U.S. dollar in 2000 after a major banking crisis, and the appreciation in the value of the U.S. dollar has made Ecuadorean exports more expensive.

The bill, brought forward by the office of President Rafael Correa, also includes measures aimed at ensuring stable employment for workers and reducing layoffs.

“So long as employment is maintained within a family, this external shock does not make people go into a state of anguish, despair. What is sought with these measures is to protect jobs, it is to give tools to the worker and also the employer so that employment can be preserved,” Carlos Baca Mancheno, an advisor to the president told the Andes news agency.

The bill must be approved within 30 days

The bill, known as the Organic Law for the Optimization of the Working Day and Unemployment Insurance, has been tagged as being of an “urgent economic nature,” meaning that the bill must be approved within 30 days.

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The National Assembly’s Committee on the Rights of Workers will analyze the first draft of the bill, where lawmakers with consult with labor organizations, and will present a report within 10 days.

With the approval of the bill, workers in Ecuador that are affiliated with the country’s social security system, known as IESS, will be able to receive unemployment insurance three months after having been laid-off. In Ecuador, workers are also legally entitled to three months severance upon dismissal.

The new unemployment insurance program will replace an existing IESS severance program, which is funded by both the employer and the employee. The change means the creation of this program will not place any additional financial burden on either the worker or employer.

Unemployed workers

The severance program has been criticized by leading officials at the IESS for not fulfilling its role in assisting unemployed workers, instead being used as a second pension paid out upon retirement.

With more than 2.6 million workers affiliated with the IESS, the unemployment insurance fund is expected to receive approximately 750 million in funds every year.

Workers who have made at least 24 monthly contributions to the IESS will be eligible. The fund will pay beneficiaries for five months starting at 70 percent of wages earned in the previous year and gradually reducing to 50 percent by the fifth month.

Designed to prevent layoffs

A second aspect of the bill is designed to prevent layoffs at companies that have experienced a loss of income or economic activity. That is, to keep the payroll as is.

The bill would allow employers to readjust the workday, creating shorter workweeks but longer workdays, so long as a single workday does not exceed 10 hours. Workers and employers would have to agree to the change.

The government also seeks to promote employment for younger workers

The government also seeks to promote employment for younger workers, who are often those most affected by downturns in the economy.

Under the legislation the state will cover an employer’s contributions to the IESS for young new workers between the ages of 18 to 24. The bill specifies that a new hire cannot replace an existing worker.

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According to official figures, as of December 2015, Ecuador had 141,164 unemployed people between the ages of 18 and 24, or 12.6 percent, a figure that is below the regional average but higher than the figure for 2014.

The bill would also make a change in compensation for students doing an internship. Whereas the previously were entitled to the minimum wage, student interns will now receive a stipend and the internship can only last six months.

The bill is likely to receive some resistance from opposition-aligned trade unions, who also fiercely opposed a major revamp of the country’s labor laws in April 2015.

That law, dubbed “The Law for Labor Justice and Recognition of Work from Home,” modifies the 1938 labor code to expand rights in several areas, including the incorporation of homemakers into the social security system and the elimination of fixed-term labor contracts.

The United Workers Front will stage a protest Thursday in front of the Ecuador’s Constitutional Court to demand the April 2015 labor reform be deemed unconstitutional. Although opposition labor leaders have not yet commented on the new reforms, they are expected to raise criticisms.

Critics have suggested that the proposed changes represent a regression in labor rights, something prohibited by the 2008 Ecuadorean Constitution, an issue that will likely be analyzed by the Constitutional Court.

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