Labor regulation —the set of rules, norms and jurisprudence that defines the possibilities of choice for workers and employers, and which dictates the structure of incentives in the relationship between them— influences the functioning of the labor market.
While protecting workers from job loss and arbitrary and abusive actions by employers, it also makes it difficult to create and destroy jobs, limiting the ability of companies to adjust to new demands, adopt technology, automate processes, and move towards activities or sectors where their presence is most productive.
The recent performance of the labor market, which saw the unemployment rate fall to 10.5%, the lowest since 2016, and 0.6 percentage point below the 2019 unemployment rate, has raised new questions about the role of labor reform. of 2017 in this impressive result, since labor regulation participates, with the economic cycle, in the determination of employment.
In all, the 2017 reform made more than one hundred changes to the CLT, changing the way the labor market works along three major axes.
First, it specified as legitimate a series of labor practices, such as the hour bank and intermittent work, reducing uncertainty about what is permissible in an employment relationship.
Second, it reduced the incentives for litigation by allowing the transfer of procedural costs to the losing party. And third, it reduced the discretion of judges in their decisions, prioritizing what was negotiated between the parties to the detriment of what is in the law.
The first-order effect of the reform is evident in the reduction in the number of labor disputes that followed after 2017.
According to the Superior Labor Court, the number of new cases in the labor courts (first instance) dropped from 2.64 million in 2017 to 1.78 million in 2018, a drop of more than 30%, remaining at around this level in the following years, including during and after the pandemic.
A study by Corbi, Ferreira, Narita and Souza (2022) shows that the costs of this litigation are significant: about 72% of labor court decisions are in favor of workers, with the value of the case around nine salaries. And that in companies that receive a less favorable court decision, the rates of job growth and wages in new hires are lower, in addition to the greater chances that these companies will need to close their doors.
The study estimates that reducing litigation, and the costs associated with it, as produced by the reform, reduces unemployment by 2.1 percentage points.
Contrary to what those who want to repeal it argue, the 2017 labor reform created an environment of greater legal certainty, which relieves companies of the costs of lawsuits in the Labor Court, and allows them to hire more workers, in a large virtuous circle that it increases the productivity of companies and the long-term growth of the economy.
But not everything is laurels. In 2021, the STF ruled as unconstitutional the provisions of the reform that required the collection of expert and succumbential fees from the beneficiary of free justice, ignoring once again that the incentive structure that was replaced stimulates litigation.
It doesn’t hurt to remember that in the Labor Court, recourse to higher courts reaches 53%. And that the rate of conflict resolution in lower courts is low: one in every three cases initiated in the Labor Courts reaches the Superior Labor Court.
The average time a case wins its first decision is substantial, taking an average of two years and a month to reach a sentence, according to Justice in Numbers 2021.
The pandemic has brought a new organization of activities in the economy and a new paradigm for labor relations — with more flexibility, greater use of technology and remote work — that needs to be accompanied by labor regulation that is up to the new times.
Ignoring the indirect effects of a labor regulation that wants everything and nothing is able to continue relegating the most vulnerable to unemployment and informality, placing them on the sidelines of various rights obtained only through the formal contract.
I have over 8 years of experience in the news industry. I have worked for various news websites and have also written for a few news agencies. I mostly cover healthcare news, but I am also interested in other topics such as politics, business, and entertainment. In my free time, I enjoy writing fiction and spending time with my family and friends.
