Explaining Enduring Labor Codes in Developing Countries: Skill Distributions and the Organizational Capacity of Labor

Over the last century in Latin America, workers have been crucial political actors. Their incorporation into political movements, parties, and the state has allowed governments to rise, or condemned them to fail (Collier and Collier 2002). Organized labor has mobilized massive numbers of voters at critical moments during elections, and it has taken to the streets in protest at reforms. This is as true over the last century as it is today, even if it takes a new form in recent decades (Etchemendy and Collier 2007).

The institutional foundations of labor's strength in Latin American are the region's labor codes. Latin America's labor laws are among the most protective and rigid in the world, restricting the ability of employers to fire workers and providing extensive employee benefits and organizing rights for unions (Heritage Foundation 2009). These laws give workers rights in both the economic and political spheres, and serve as a gateway to participation in state-organized social security programs. And against all expectations, they have remained this way even during the era of globalization and restructuring for economic competitiveness (Murillo 2005; Murillo et al. 2011). But legal provisions governing labor are also highly uneven in the region, with considerable variation across countries and economic sectors. What explains variation in labor law provisions, both those regarding the individual hiring and firing of workers and the collective action of organized workers? And why have Latin America's labor codes been the hardest economic policy area to reform?

Too often, past analyses have treated these as separate questions. They have developed explanations of initial labor law development and differentiation (Collier and Collier 2002 is a masterpiece in this regard) or of the process of reform and resistance (Murillo 2005; Murillo and Schrank 2005; and Cook 2007 are outstanding examples). This work provided significant insights into labor's incorporation into the state or political parties, and into the role of parties and competition and historical legacies in shaping reform trajectories. But rarely have these two literatures been able to dialogue with each other. Indeed, the Latin America of the reform period was posited to be fundamentally different from that of the incorporation period.

With the perspective of history, this book argues that the answers to the questions of difference and stability in labor codes are interrelated. Looking at Latin America now, after the dust has settled from the flurry of reformist measures and economic liberalization of the 1980s and 1990s, what stands out is continuity over the long term. Thousands of changes in specific measures within labor codes have not fundamentally altered legal systems that first came into force sixty, seventy, and eighty years ago. This is a perspective that has only become possible in recent years, with the advantage of the long span of history. And it is a perspective that can only be gleaned by looking at labor codes in a new way—as coherent bodies of regulations, and not simply as piecemeal measures. It is in these comprehensive labor codes that we can see the striking continuity over the last century. In other words, by looking at the forest that is the legal environment governing labor, rather than the trees of specific laws, we can appreciate how much continuity has reigned in the region, even despite change.

This chapter develops a microfoundational theory to explain variation in labor law outcomes across Latin America, and by extension, across all developing countries. Its basic premise is that country-level differences in labor codes, and the stability of those labor codes through time, can be explained by a common set of factors. First, higher skill levels in the workforce are posited to be tied, over the long term, to more protective and more generous laws governing individual labor relations. Second, greater organizational capacity among workers is hypothesized to permit more effective political action such that, over the short to medium run, laws governing collective labor relations will be more developed and provide greater rights and freedoms to labor unions. Together, these two hypotheses allow us to explain long-term variation in the labor codes of different countries. Short-term deviations from the predicted equilibria are possible, but they are likely to be much more fragile and short lived, emerging only when nondemocratic governments or labor-allied parties are able to temporarily impose such measures on the system.

Several steps are required to make this argument. First, the chapter develops a typology of "labor law regimes" that takes into account multiple elements of each country's legal code. These regimes allow us to see how specific laws interact, especially those governing the individual contracting of workers, on the one hand, and the collective activity of worker organizations in unions, on the other. The result is an objective, measurable understanding of labor codes that permits comparison over time and across countries.

Next, the chapter lays out the theoretical framework for understanding the initial origins and historical development of the labor law regimes. Because these legal regimes tend to be lasting and stable, it focuses first on long-term economic constraints of labor policy. It argues that over the medium to long term, labor relations are constrained by existing economic conditions, in particular the resource base of labor and capital and national development programs. Labor laws must take into account the economy's underlying economic conditions—most important, the skill distribution among workers and the skill needs of employers—or face constant pressure for change. For this reason, the theory developed below treats skill profiles as a critical constraint on labor law development over long periods of time.

The theory further argues that political factors play a role primarily in the short to medium run and in specific, focused reforms. Politics provides the mechanisms for interest articulation that result in labor legislation. Among these mechanisms, I focus most attention on labor's role in the political process, which I call the "organizational capacity of labor." This concept captures the extent to which labor is united as a political and economic actor, has effective leadership and substantial resources, and functional ties to political parties and...