LABOR REFORM
VIII. LABOR REFORM
One of the major costs of transferring port services to the private sector is the cost of labor retrenchment. This is of particular concern for ports with a large, inefficient labor force and strong unionism. The need to obtain cooperation from labor in organizing the transfer of public port services to the private sector has been demonstrated repeatedly. There is a growing body of experience on how to approach this problem. There is also a growing appreciation of the benefits of transferring the labor to the private sector as part of the divestiture agreement as well as utilizing incentives to accelerate attrition of the redundant workforce.
The difficulty of reaching an agreement depends not only on the past history of port labor relations, but also on the amount of labor which will be displaced, the age of the workforce, the strength of the labor organizations, the opportunities for re-employment both inside and outside the port, the current structure and level of compensation, and the flexibility available to the public sector in developing an agreement with labor.
The first step in dealing with excess labor is natural attrition through a freeze on hiring. This has the disadvantage that it requires a long time to reduce the labor force and it denies an organization access to new talent. Where this is applied for a sustained period, it produces an aging and conservative workforce that is isolated from modern technology and management methods. There is insufficient time to make use of this strategy prior to increasing PSP, but it can be used afterwards to reduce the size of the residual labor force.
The second step is a voluntary retirement scheme. These schemes make some sense in the private sector where management can distinguish between those it wishes to retain and those it wishes to leave. It is illogical in the public sector where compensation is often provided on the basis of number of years in service. Those with the greatest experience and the shortest period remaining before retirement are given the maximum incentive to leave, while those with the least experience and the longest period to retirement (and usually with the greatest capacity for finding alternative employment) are given the least incentive. Where these schemes have been introduced they have almost always failed. India has recently attempted this program but there was little response. A better approach is to provide a fixed amount or to offer the scheme only to those with
a relatively long period remaining before retirement. Voluntary retirement schemes are followed by mandatory retrenchment schemes that allow
a port management to select whom will be retrenched. The benefit packages to be provided to labor must be negotiated and will be greater than for the voluntary scheme. A typical level of payment for voluntary schemes is 1-1.5 months pay for each year worked but negotiated agreements typically ranae from 2-4 months.
Schemes to absorb the labor force into other port activities to be followed by a hiring freeze and natural attrition have been somewhat more successful, especially where the activities of the port are growing or outside employment is readily available. If the activity of the port is expanding, then it may be possible to absorb the excess labor into other logistics activities such as warehousing, consolidation, etc. This can be done within the port organization or by allowing the labor to form cooperatives or small corporations to supply services to the port. This approach was successful in Port Kelang and Laem Chabang. It is more difficult where employees’ compensation already includes overtime, incentive pay, speed money, and other non-wage compensation which will
be lost as a result of the change. This situation applies to many of the ports of South Asia.
Where there is sufficient lead time, the government can take a pro-active approach by reducing or eliminating the role of the unions and by deregulating cargo-handling services to permit open competition. Uruguay and Argentina had some success with this approach, as did Indonesia.
Two approaches which appear to offer a better chance for success are programs that emphasize job placement programs and those that leave the problem to be sorted out by the private sector. The first involves a carefully designed, long-term program worked out together with labor to provide for a mixture of compensation, retraining and job placement funded through a separate charge on the cargo. The US West Coast ports applied this program successfully for its longshoreman during the advent of the container age. The second approach is to transfer the excess labor to the private sector with suitable job protection for a fixed period of time. Since the private sector is more concerned with avoiding labor conflict and restrictive work practices, they are often willing to accept this arrangement. The private sector is willing to negotiate with employees, as this is one of their strengths relative to the public sector. Mexico settled for this approach after unsuccessfully attempting a more pro-active approach. This approach has also been applied in terminal leases in Karachi and Nhava Sheva. The Australian Government’s recent decision to back Patrick Stevedoring in its struggle with organized labor indicates that the need for a concerted action by both the public and private sector may be necessary.