FTZ manufacturers request Govt. to study situation before raising retirement age

Source:FT

• Insists Govt. must have proper information and consideration about demand-side implications before implementing hike
• Lists its concerns in letter to Labour Minister with copies to President and PM
• Says private sector enterprises may respond by decreasing hiring of new staff as older workers will need to be replaced later
• Points out industrial and manufacturing sector needs young workforce compared to older workers 
• Laments lack of incentives for private sector to recruit more female workers, says legislation is restrictive instead

The Free Trade Zone Manufacturers Association (FTZMA) has urged the Government to properly study the pros and cons of the proposed raise in retirement age to 60 before implementation of the 2021 Budget move.

The FTZMA is a member of the National Labour Advisory Council (NLAC) which is the tripartite apex body to discuss policy-related labour matters and advice the Minister of Labour.

FTZMA said it “strongly urges the Government to study and examine how business firms could adjust their personnel policies when forced to retain their older workers longer than initially expected and all related labour market implications before taking policy decisions regarding a higher legal retirement age.”

Following are excerpts of the letter signed by FTZMA President Jatinder Biala and Secretary Dhammika Fernando to Labour Minister Nimal Siripala de Silva with copies to the President, Prime Minister, Labour Secretary, Commissioner General of Labour and Board of Investment.

“The FTZMA has constructively engaged in dialogues at the NLAC and significantly contributed for the development of labour policy in Sri Lanka. While assuring our contribution and continuous support in this regard, we strongly believe that social dialogue will be the best method of settling industrial disputes and maintaining industrial peace which is of paramount importance for the economic and social development of a country. In this context, we are of the opinion that the NLAC has to be further strengthened as the place where voice of both employee and employer representatives is equally heard and decisions will be taken based on reliable information considering all positive and negative impacts of such decisions.

“As you know, discussions took place at the NLAC at number of occasions to bring legislation in order to fix a minimum retirement age as 60 years for the private sector employees. As you are aware that there is no Legal Retirement Age (LRA) for the private sector employees in Sri Lanka though they have been allowed to withdraw their Employees Provident Fund (EPF) benefits at the age of 50 and 55 years for females and males respectively based on the termination of employment. 

“However, the prevailing practice of the private sector is to allow workers to retire at the age eligible to withdraw EPF benefits. We understand that Sri Lanka needs higher LRA in order to address the financial consequences, including social security, of ageing. However, the success of this policy is ultimately determined at the labour market and we have a strong feeling that the Government must have proper information and consideration about the demand-side implications before arriving at a decision regarding higher legal retirement age. Accordingly, we wish to draw your kind attention to the following few implications which may arise as a result of higher mandatory LRA.

“Firms that are forced to retain workers for longer than initially expected may respond by decreasing their hiring of new staff as the older workers will need to be replaced later. This will further aggravate the youth unemployment which is around 18% at present.  

“The industrial sector including manufacturing significantly contributes to the economy both in terms of production and employment. This sector needs a young workforce compared to older workers because it creates blue collar jobs. Accordingly, forcing the private sector employers to retain older workers for another couple of years will hamper productivity as there is no perfect age substitutability of labour, and would significantly increase the cost of production owing to higher wages, increased contribution for EPF, ETF and higher benefits to be paid as gratuity.

“The Female Labour Force Participation (FLFP) in Sri Lanka has been stagnating around 34% for more than two decades. There are no incentives for the private sector to recruit more female workers, instead there are restrictive legislations. Article 4 of the International Labour Organization (ILO) Convention on Maternity Benefits No. 103 which Sri Lanka has ratified, has clearly spelt out that ‘in no case shall the employer be individually liable for the cost of such benefits due to woman employed by him,’ private sector employers in our country have been legislatively mandated to pay total maternity benefits (84 working days) irrespective of the number of children. On the one hand, there are night work and overtime restrictions for female workers by law. On the other hand, there is no flexibility in labour laws with regard to part time work, working from home, etc. as rights of workers have been defined based on full-time employment. Under these circumstances, fixing higher LRA could contribute to further decline in FLFP as firms have no room for new recruitment due to mandatory requirement of keeping older workers for more years than expected.

“The COVID-19 pandemic has been a hindrance to almost all economic activities in the world. There is no exception for Sri Lanka. Tourism and export sectors including textile and garment manufacturing industries are the most affected ones in Sri Lanka. The recovery of these sectors will entirely depend on the global market situation and how fast COVID-19 will be controlled and contained. There is no signal how soon economies could be back to normal. In such a situation fixing a higher LRA for the private sector workers will diminish the existence of business firms, small and medium enterprises in particular. 

“On the one hand, the period over which, the older workers contributed to the EPF will be extended while the period over which they spend their benefits could be diminished. However, on the other hand, the contribution from younger workers, who have not been recruited, to the EPF may fall. Unrest among youth may arise due to unemployment and no unemployment benefits for those who are first-time jobseekers. Finally, the youth will become a high pressure group demanding jobs in the public sector which requires more fiscal space. Hence, the social cost of fixing mandatory higher retirement age would be much higher than the social benefits. 

“Dear sir, we therefore strongly urge the Government of Sri Lanka to study and examine how business firms could adjust their personnel policies when forced to retain their older workers longer than initially expected and all related labour market implications before taking policy decisions regarding a higher legal retirement age. We earnestly request you to share it also with all the members of the NLAC.”