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Costa Rica’s Unemployment Ruse

Jun 17

san-jose-costa-ricaAccording to the latest numbers, 15,000 people lost their jobs in Costa Rica during the month of December 2008 . Business closings and reduced revenue due to lower international consumer spending are the main reasons. Simply listen to the latest newscast and you will hear about worldwide job loss and rising unemployment in the economic superpowers. Costa Rica depends mostly on tourism for its revenue but it has reached out in the past to attract manufacturers to augment that revenue. But that is not even a good hedge bet today, Sylvania announced it will be closing its plant in Pavas, leaving another 200 josefinos unemployed.

Unfortunately, business closings will not stop with the Sylvania plant. Leading economists are predicting the cliche “things are expected to get worse before they get better.”  Many in the international banking business say the economic downturn will last more than two years. Last year, Costa Rica’s unemployment level was near 5% and in 2009 is expected to rise to 6%.

In an thinly veiled attempt to reduce the economic downturn effects on job loss, UCCAEP, Costa Rica’s union of private businesses said it will be presenting a bill to congress called the “Law of Employment Protection in Moments of Crisis”. Their proposed law would present temporary changes to the Employment Code to allow businesses to take the necessary precautions to avoid firing their workers. New rights such as reducing work hours by one third and/or buying accrued vacation time from employees. Both of these would allow the company to slightly decrease individual salaries, and therefore employ more people at the same price. Companies would also be able to lower executive salaries. In theory, this seems to have good motives but in practice this is a recipe for abuse of power that the Employment Code is supposed to protect against. To reinforce this abuse of power, an unnamed UCCAEP representative said that if an employee does not agree to the changes, which would not exceed a period of six months, they will be fired and receive severance pay.

The UCCAEP’s bill is very similar to the Arias’s “Shield Plan” that would allow a three day week working 12 hours a day, or changing daily work hours. But the Presidents plan has not been approved nor has the UCCAEP’s plan. Anyone stepping outside of the drama theatrics can see this thinly veiled attempt of offering help is nothing more than a well-guided plan to reduce the unemployment burdens on private business owners and on the government. Unless the Costa Rican government plans to reinvent Economics 101, they might want to remember that it is the reduced capacity of an economic system that leads to reduced output. In other words, if the incoming revenue is reduced for the Costa Rican economy, then the overall spending capacity for this system will be reduced. Whether or not, 3 workers employed earning $100 per day or one worker earning $100, two unemployed, the overall effect on the system is the same. 

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