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May 12, 2015

Brazilian House Approves Labor Outsourcing Bill

Clipping from BBC Brasil
Article by Ruth Costas
Translated by Pedro Ferreira

April 22, 2015

The Brazilian House of Representatives ended a vote on a controversial bill regulating the outsourcing of labor in Brazil. The approval of PL 4330 represented a defeat for the Worker’s Party (PT), and various worker unions that lobbied to deny the bill.

The main text was approved on April 8. Since then, the House has considered various amendments. The bill will now move to the Senate, where it should continue to generate controversy.

 PL 4330 allows companies to outsource their core labor needs. According to the Workers Central Union (CUT), the bill would harm labor relations in the country. On the other hand, employers, such as Fiesp, argue that the measure could generate thousands of new jobs, and expand legal certainty for the 12 million Brazilians who already render services as contractors.

 But the controversy is far from new. For decades, economists have been divided within and outside Brazil about the possible effects of outsourcing workers. BBC Brazil interviewed economists with different points of views on the topic to provide insight on the debate of whether outsourcing helps create jobs or harms labor relations.

Job creation

For Márcio Salvato, coordinator of the IBMEC-MG's economy department, expanding the possibilities of outsourcing of business activities can help competition in the Brazilian economy, boosting job creation in the medium term. 

"The hiring of contractors can reduce the burden on the payroll and the resources spent on the management of workers in companies. In addition, they can hire more skilled workers, which enhances efficiency," he says.

Insper Professor, Fernando Peluso is more skeptical about the effects of outsourcing on employment generation.

"A company that needs 1,000 people to produce will continue to need those 1,000 people. These employees maybe replaced by contractor employees, but I do not see why companies would hire more or less workers," he said.

José Dari, Unicamp economist expert in labor relations, stated in partial agreement with Peluso: "Indeed there is no empirical evidence that outsourcing creates jobs. What creates jobs is a heated economy. The employers hire more when they know they can sell more.”

"One may venture to say that an increase in outsourcing causes a decrease in jobs, because contract workers tend to work more hours," added Dari.

The Unicamp professor recalled that in the 1990s many economists said that high unemployment was caused by the rigidity of Brazilian labor laws.

"They argued that it was necessary to reduce costs related to fire workers in order to encourage hiring, and it was then that for a fixed term contracts have been created, and what happened? Those contracts were barely used. In the 2000s unemployment was reduced, while workers' rights were upheld, because the expansion of economic activity favored it."

Both Peluso and Salvato believe that the possibility for companies to outsource their activities can help them become more efficient. According to them, this would be true for the outsourcing of certain service needs. I.E. security, cleaning and IT services.

"There are companies whose final product depend on a number of specialized processes. Consider the case of construction companies. They may want to outsource the earthworks, or the electrical part of their projects if they feel that hiring a specialized firm will yield a better result,” said Peluso.

For the Insper Professor, a positive point of the new law is that it requires providers of outsourcing services to be specialized in their area. This would favor, in his opinion, a strategy to reduce costs and gain efficiency at the expense of outsourcing.

As for Dari, Unicamp, outsourcing is far from guaranteeing better quality.

"Why would a company be interested in outsourcing its core labor demands? To have lower costs with their employees, and pay lower wages," he said.

"In many outsourcing arrangements the company must pay not only the workers who perform a certain function, but also the intermediaries who do the hiring. This is a lost resource. The outsourced professional earns less, and is not always the most skilled. There have been instances of companies who abandoned outsourcing because the results were not desired."

Workers' rights

The opinions were also divided, with regard to the effects of outsourcing on the rights of workers. 

According to CUT, four out of five work accidents involves outsourced employees.

These employees also receive lower wages 25%, and work on average three extra hours per week.

Dari says that data shows that an expansion of outsourcing would eventually claim the rights and conquests of the working class in Brazil.

"It is clear that Brazilian companies can become even more competitive if they pay less and offer fewer benefits to their workers, but the question is: what kind of nation we will build with this strategy?" he asked.

"Do we want to be like Bangladesh, where the salary of an employee in the textile industry is $38? Why not attack the problem of competitiveness with other strategies like stimulating technological innovation, improving our infrastructure, etc…"

Salvato, of IBMEC-MG, does not deny that changes in the market driven by a new law on the subject could represent lower wages.

He recalls, however, that third parties are required to follow the CLT. Salvato believes that the new design expands the legal security of outsourced workers. Companies that hire their services, for example, are required to determine whether the rights of those employees are not being violated.

"The world has changed, and the rights of Brazilian workers will have to be rethought," said Salvato. "When the laws were created, we had a much younger population, and there was a lot of pressure from international competition."





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