How to generate employment in Ecuador

By Luis Fierro Carrión (*)

Twitter: @Luis_Fierro_Eco 

Ecuador faces the most serious economic crisis in its recent history. Added to this is an almost complete absence of leadership, a deterioration of its institutions, institutionalized corruption, and the loss of public faith and trust.

A collapse of the economy of around 10% is anticipated in 2020. Adequate employment, according to the INEC, has fallen to an all-time low of 16.7%; while unemployment has increased to more than one million people, 13.3%. It is urgent to achieve a sustainable and equitable economic reactivation and promote job creation.

High levels of unemployment and underemployment will lead to increased poverty, inequality and malnutrition, and probably also lead to increased insecurity.

The most effective and sustainable way to reduce poverty and inequality is through the creation of quality employment. 

Do you remember that President Moreno offered to create a million jobs in four years? Instead a million jobs have been lost.

Despite electoral offers and rhetoric, there is little a President can do to create jobs. It is true that inadequate economic policies can lead to a drop in private investment and, consequently, to job losses. It is also clear that improper handling of a pandemic can lead to massive job losses. And a pro-cyclical fiscal management, such as the one implemented by the “Alianza PAIS” governments in the last 13 years, can lead to massive reductions in personnel in the public sector in contractionary phases, such as the current one.

But creating productive employment in the private sector is more difficult. It is necessary to generate an environment conducive to attracting national and foreign private investment, in order to increase productivity, generate added value, and, if possible, increase exports.

Legal security must be sought, and an adequate tax framework must be established, to avoid shocks and uncertainty. It was counterproductive that the Correa government eliminated the Bilateral Investment Treaties, and made no progress in signing Free Trade Agreements with our main trading partners.

It is also necessary to improve the quality of the educational system (the same one that has collapsed as a collateral damage of the pandemic), and in particular to establish vocational training systems linked to the demands of the labor market.

In the short term, you can:

•  Provide professional protective equipment (masks, goggles, gloves) to the personnel, and try to operate with the required social distance. As far as possible, implement telework, which is more feasible for intellectual work.

• Channel the resources of multilateral organizations to offer credits and guarantees to micro, small and medium enterprises (MSMEs), in order to preserve and expand labor contracts.

• Make employment contracts more flexible, especially for new workers and young people. Extend the trial period for new employment contracts to two years. Allow part-time and temporary employment contracts.

• Strengthen the protection system for the unemployed.

• Create mechanisms to put job applicants and bidders in contact.

• Allow agreements between the parties to renegotiate working conditions in companies.

• Allow agreements between the debtor companies and the financial system, to extend terms, without incurring default interest.

• Promote the development of the capacity of micro, small and medium-sized enterprises for electronic commerce; the digitization of services; and provide professional training in these areas.

• A profound reform of the social security system is required, changing the governance and administration model of the IESS.

• Channel resources from multilateral organizations to face climate change, increasing the energy efficiency of small and medium-sized companies; and facilitate investment in renewable energy (solar, wind, biomass, hydro).

In the medium term, it is necessary to establish a productive, sustainable economy inserted in the world, regulated by the State, based on the initiative of the private, social and solidarity sector, and oriented towards the generation of quality jobs.

Some policies in this direction:

• Promotion of an economic model based on private initiative, that will generate links with the social and solidarity economy.

• Incentive for the creation of new companies through the streamlining of procedures, reducing the time and cost it takes to create a company.

• Government support for exports in accordance with parameters of sustainability and quality of employment, incorporation of technology into the national human capital and increasing the national added value.

• Provide technical assistance, infrastructure, logistics, services, public funds to support the management of MSMEs.

• Establishment and development of free zones to facilitate the importation of raw materials, intermediate goods and equipment, and then export the final products.

• Incentive to national and foreign investment that helps to promote the creation of productive employment, technology transfer, promotion of renewable energy, energy efficiency.

• Promotion of clusters and development of productive networks between companies-universities-government, and between large, medium and small companies.

• Promotion of financial inclusion by simplifying the regulatory framework for microcredits so that they are less expensive. 

• Promotion of microfinance entities and credit cooperatives.

• Promote access to information and communication technologies. Boosting companies that invest in research and development, either independently or in partnership with universities, ensuring mechanisms for the protection of intellectual property.

• Promote corporate social responsibility actions: including integration in value chains and clusters of MSMEs.

(*) This is an English translation of a column published in the “El Universo” newspaper of Ecuador on October 2, 2020.

https://www.eluniverso.com/opinion/2020/10/02/nota/7997974/como-generar-empleo