Peruvian miners recently took to the streets in a strike meant to protest proposed labor reforms. The labor reforms, proposed by President Pedro Pablo Kuczynski’s administration, aim to loosen restrictions on the termination of workers and generally relax regulations. They have been perceived as hostile to workers’ interests by Peru’s mining unions, who claim that the reforms “would loosen safety rules, make it easier to fire workers and shift the burden of paying into an unemployment fund to workers from employers.” Although Union officials called off the strike after the government’s promise to establish a task force creating dialogue regarding the labor laws, some skepticism will remain.
Nevertheless, a recent staff report published by the International Monetary Fund paints a different picture. The IMF noted that labor market regulations pose a serious problem for Peru, and “are linked to high levels of informality[.]” Simply put, heavy-handed market regulation discourages entrepreneurs from formally incorporating their business activity. Instead, the preference is to pay workers under the table: “With labor laws that offer generous protection to workers, the result is that about 53 percent of Peru’s workforce is outside the formal job market, with no protection, no social security or unemployment contributions and paying no taxes.” Informality is viewed as a “key impediment” to growth by Peruvian authorities, and rightfully so, according to the IMF: “Peru has a relatively inefficient labor allocation across sectors […] This opens the possibility of large efficiency gains if labor were to move from the informal to the formal sector.”
In short, labor reforms meant to cut regulations are projected to stimulate economic growth, and significantly improve the ease of doing business in Peru.