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Continuity Despite ChangeThe Politics of Labor Regulation in Latin America$

Matthew E. Carnes

Print publication date: 2014

Print ISBN-13: 9780804789431

Published to Stanford Scholarship Online: January 2015

DOI: 10.11126/stanford/9780804789431.001.0001

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Contradictions, Divisions, and Competition:Encompassing Labor Regulation in Peru

Contradictions, Divisions, and Competition:Encompassing Labor Regulation in Peru

(p.127) Chapter 5 Contradictions, Divisions, and Competition:Encompassing Labor Regulation in Peru
Continuity Despite Change

Matthew E. Carnes

Stanford University Press

Abstract and Keywords

This chapter examines Peru as an example of an “encompassing” labor law regime, which offers low levels of individual worker protections but facilitates independent union organization and activity. It argues that the lower level of skills in the Peruvian economy made organization around issues of individual contracting difficult. Further, frequent periods of authoritarian rule and weak ties between workers and political parties offered few opportunities for the advancement of labor’s collective interests. As a result, during the globalization period, Peru has undermined even the weak labor laws it had developed, consigning an ever-greater proportion of the population to work without legal protection.

Keywords:   Labor laws, Peru, labor unions, absolute job stability, reform, globalization, encompassing

Investors and business owners complain bitterly about Peruvian labor legislation, which they claim imposes impossibly high costs on their production. Long vacations, high severance payments to dismissed workers, and the regular occurrence of strikes stand in the way of economic growth and development in Peru.

Nongovernmental organizations complain, equally bitterly, that Peru does not enforce its labor legislation, and that countless workers are mistreated, exposed to hazardous work conditions, paid poorly, and vulnerable to arbitrary dismissal according to the “junk contracts” the country allows. Even worse, statistics show that well over half of the workforce does not have formal employment; they undertake extralegal ventures and jobs that are completely untouched by the state.1 Can both of these sets of claims be correct? Peruvian economist Hernando de Soto sees a linkage between them (1989; 2000). He argues that informality and poor enforcement are a direct result of rigid labor legislation. Legal standards are so restrictive, he believes, that they encourage (even require) evasion. And the evasion comes at a tremendous cost to the economy—in quality of life for workers, in productivity for firms, and in overall development and institutional capacity for the state. The legal system reinforces a fundamental fracture in the workforce, between the skilled and unskilled, and between the organized and the unorganized.

Peru presents a striking contrast to both Chile and Argentina in the configuration of its labor laws, and a puzzle in its own right. According to the analysis in Chapter 3, postreform Peru had one of the weakest labor codes in Latin America in absolute terms, and thus stood at the opposite end of the spectrum from

(p.128) countries like Argentina and Mexico. However, this characterization obscures the underlying features of its labor regulation, which changed significantly during the reform period. In fact, as outlined in Chapter 3, the country moved from displaying many of the characteristics of a “professional” regime in the 1980s to those of an “encompassing” one in the 1990s and 2000s.

Prior to the reforms of the 1990s, Peru presented two divergent trends in the design of its labor codes. First, its individual labor regulations were among the most highly protective in the region—with “absolute job stability” enshrined in law even under diverse democratic and nondemocratic governments. Yet while this meant that workers who were covered by labor laws enjoyed strong pro-tections of their jobs, it also created substantial pressures for employers to hire workers “off the books,” without the costly requirements of legally mandated provisions. As a result, a small group of workers—mainly concentrated in the professional and state sectors—came to enjoy a full package of contract rights and privileges, while the majority of the workforce remained outside these legal protections. On the other hand, Peru's collective labor regulations were extremely weak, and largely designed to fragment the concentration of power in unions. Labor unions were small and frequently divided, and often shifted their allegiances among competing labor confederations; they lacked a single party interlocutor to represent their interests in government. How did this institutional mix come about, and how was it sustained through time?

In addition, what accounts for the rapid and lasting reforms undertaken in the 1990s? Peru is one of only two countries that saw significant decreases in the protectiveness of its labor codes, and then sustained that new equilibrium through subsequent governments. These reforms essentially reversed the previous labor law configuration, creating a system in which individual rights applied to an even more restricted few while collective rights moved toward greater protectiveness. The former were weakened by decreasing their coverage; the introduction of new “modalities” for temporary employment effectively excluded an even larger portion of the workforce from attaining job stability, long vacations, and high severance pay.Yet new legislation gave organized workers greater opportunities for engaging in strikes and diminished state intervention in their regular operation. Simultaneously, the reforms weakened labor unions by permitting even more competition among them, and raised the bar in terms of the requirements for forming new unions. Surprisingly, though, Peru's labor reforms were not univocally negative for labor. In short, the laws became stronger for (p.129) covered individual workers, even as the number of workers who enjoyed the high protections declined. And they provided even more opportunity for labor organizing. How were some workers able to preserve their legal protections, while others saw theirs even further diminished?

This chapter argues that both labor regulation outcomes in the mid-twentieth century and in the reform period can be best explained through reference to Peru's relatively weaker skill levels and poorly organized union movement. The concentration of skilled workers in a small number of sectors gave these workers incentives to seek benefits restricted to themselves. And unions were divided even from the beginning, with one segment hewing a more communist line (the Confederación General de Trabajadores del Perú [CGTP]), while the other remained more pragmatic and maintained ties to the Alianza Popular Revolucionaria Americana (APRA) party (the Confederación de Trabajadores del Perú [CTP]). Thus no broad-based coalition of workers could emerge, and the small group of workers that was better organized had significant advantages in the shaping of the labor code. Both military and democratic governments catered policies to this small minority.

This chapter proceeds as follows. First it describes the distinctive features of the Peruvian labor code, which couples targeted individual protections, on the one hand, with permissive but fragmenting union regulations, on the other. The second section describes the origins of the Peruvian labor laws, indicating how a relatively small early endowment of skilled labor and late industrialization combined to make labor legislation a policy whose impact was restricted to a small subset of workers. In addition, it highlights how a lack of union organization and membership, as well as divisions within the movement itself and poor ties to organized parties, prevented the development of a more effective labor voice in the country.The third section traces the progression of labor code measures from the first laws until the end of the 1980s, describing how path-departing expansions of labor rights were introduced—and soon abandoned—by governments seeking to attract support from workers. These reforms promised a level of job stability that they could not deliver or systematically enforce. The fourth section details the massive reforms undertaken by Alberto Fujimori, which dramatically expanded fixed-term and nonpermanent employment, but also provided some new protections to unions. Section five concludes the chapter, highlighting the comparative strengths of the theory articulated in this book over other competing explanations of Peru's labor law development.

(p.130) 5.1. The Peruvian Labor Code and Its Anomalies: The Puzzle to Be Explained

For most of its history, the Peruvian labor code has combined very strong protections of individuals with very limited coverage, on the one hand, and a permissive but weak approach to collective organization that facilitates union fragmentation and state intervention, on the other. Pasco Cosmópolis (2002) calls it a “profuse legislation, hyper-protective of the worker, whose emblematic characteristic was job stability, implanted with an absolute character to the point of becoming a virtual prohibition on firings, and the proliferation of anti-technical, anti-economic, and discriminatory benefits” (11). This section details the distinctive features of the Peruvian labor code, which the remainder of the chapter seeks to explain. As will be seen, job stability stands as a central feature in Peruvian labor law, always a point of reference even when it is not fully (or even partially) realized. And unions face fairly low hurdles for organization, but as a result are more likely to be divided and weak.

Peruvian Individual Labor Law:From “Absolute” Job Security to Fixed-term Contracts

Somewhat surprisingly, several aspects of Peru's individual labor codes are among the most protective in Latin America. For example, workers on permanent contracts are entitled to thirty days' paid vacation per year, two yearly “gratifications” (extra wages in July and December), and they enjoy extremely large mandatory severance payments if they are dismissed without cause. But the fulcrum on which Peruvian labor law has traditionally turned is job stability. The “right” to job stability is central to the law's understanding of labor relations; it reached its high point in the military-imposed “absolute” job stability measures of 1970 and 1975, and was even enshrined in the Constitution of 1979. Employers who dismissed workers without grave cause were subject to fines, back pay, and criminal prosecution, in addition to being required to reinstate the worker.

The mechanism by which job stability is protected in Latin America, as seen repeatedly throughout this book, is severance pay. In Peru, current mandatory severance pay (a key component in ensuring job stability) is set at 1.5 months for each year of service; this is the highest in Latin America. Indeed, the figure is so generous that consumption by unemployed workers receiving severance pay is higher than that of workers who are presently employed (MacIsaac and Rama (p.131) 2001). It is further augmented by an additional measure called Compensation for Time of Service (CTS, Compensación por Tiempo de Servicios). This is a onetime payment at the time of ending the employment relationship that effectively works as a combination forced-savings account and unemployment insurance for the worker. Employers make a monthly deposit in the CTS account of each of their workers (currently equivalent to 8.33 percent of the worker's wage). In theory, the worker has access to these funds only at the time of retirement, but various governments have chosen to relax this restriction in order to allow workers to use the funds for the purchase of homes, or in some cases, to weather financial crises. The large investment the employer makes into the CTS fund serves as a deterrent to firing the worker.

In contradistinction to these strong job stability provisions, Peru has since the 1980s adopted a wide-ranging set of nonpermanent employment “modalities”—fixed-term contracts that do not carry the presumption of absolute job stability.These were especially promoted during the latter years of the first García government and the early years of the Fujimori government, to bring informal workers and the unemployed into the formal sector by decreasing the costs of hiring (and firing) for employers. While provisions had previously existed for a period of apprenticeship or on-the-job training, these were generally restricted to short periods (three months), after which workers were to be considered permanent. But in the Fujimori reforms, the number of possible “modalities” was expanded up to nine main areas, allowing temporary contracts for a host of economic motives. At the same time, the probationary period was lengthened to five years and dismissal procedures were eased.

The combination of the strong job stability requirements and numerous fixed-term hiring regimes has created a regularized practice of evasion by employers. Workers are repeatedly hired on fixed-term contracts, or are fired and rehired numerous times before they reach the seniority necessary for high severance packages.Thus the labor laws reinforce, rather than combat, the precariousness of the labor market. Rigid laws and generous benefits effectively shunt many workers into the informal sector and into temporary contracts; the result is that only a small minority enjoy the full battery of individual protections. Only one in five private sector workers is legally entitled to severance pay, and only one in three private sector wage earners; additionally, the current system is distorted such that wealthier workers are covered more. These strong individual labor regulations create a clear bifurcation in the labor market between workers that have access (p.132) to the full gamut of labor law protections and benefits and those that do not.

In short, the individual labor regulation in Peru is highly protective, with an emphasis on ensuring the absolute job stability of workers. However, this has resulted in a host of provisions that limit or circumvent that stability, either by legally steering workers into fixed-term contracts or by evasion by employers through firing and rehiring. It has also pushed workers into the informal sector, either as independent salespeople or service providers or as workers employed “off the books.” Most survey estimates place the population covered by job stability measures—and all individual labor laws—at a stunningly low 15 to 20 percent of the workforce (MacIsaac and Rama 2001).

Peruvian Collective Labor Law:Fostering Fragmentation and State Intervention

The collective labor codes in Peru are not very extensive, and they tended to develop as a result of, rather than as a prelude to, the emergence of unions in the country. Indeed, unions existed for the first decades of the 1900s before having any legal requirement to register or seek government recognition, a provision that was only introduced in 1936. Ever since that time, three central features of the Peruvian collective labor code and labor organizing stand out. First, the bar for organizing unions is set quite low. This permits a proliferation of labor organizations, frequently resulting in competition or fragmentation among them. Second, the structure of Peru's economy—concentrated in small enterprises—effectively limits the possibility of unionization reaching beyond a small portion of the total working population. And third, the law allows easy government intervention in unions, limiting workers' ability to act, coordinate, and strike.

Peruvian collective labor law is set up to “privilege the firm [level]” of union organization, rather than sectoral or economy-wide confederations (Pasco Cosmópolis 2002: 23). While higher-level unions are not prohibited, little provision is made for them in the law or in their interaction with the Ministry of Labor. The main focus of labor legislation is thus on firm level unions, which are required only to have at least twenty members. In early periods, an additional requirement was that the unionized workers constitute a majority of the work-force of the firm. In later periods, however, the majority requirement was relaxed, making initial organization easier and, in many cases, permitting the organization of multiple unions within a firm or industry. In addition, confederations are easy to organize. As a result, several rival union confederations have existed, (p.133) complicating coordination with political parties. Only one (Confederación de Trabajadores Peruanos [CTP]) has lasting linkages to a particular political party (APRA). Thus the collective labor law in Peru contributes to the development of a fragmented, competitive union marketplace.

However, union organization is also confined to a small portion of the work-force—not because of direct legal prohibitions on organizing, but as a result of the structure of the labor market. Peruvian firms tend to be small, so many work-places do not have enough employees to meet even the low twenty-member requirement. Unions in the 2000s have called for this minimum to be reduced to ten workers in order to expand the possibility of unionization. Further, much of the Peruvian workforce finds itself full-or part-time in the informal sector, as independent small-business entrepreneurs or salespeople or service providers, day workers, or members of family businesses, making the pool of “unionizable” laborers even lower. Most estimates place unionization at approximately 20 to 30 percent of all workers. Given that the unions which exist have been competitive rather than cooperative, the small unionized sector is more likely to concentrate on the particular interests of individual sectors or firms. And those outside of unions are more likely to view them with suspicion; survey evidence shows that unions are among the least trusted institutions in Peruvian political life.

Finally, Peru's collective labor laws accord a central role to the state. The Ministry of Labor has broad powers to intervene in labor relations and limit union militancy. This role for the state begins with the recognition process, which gives the state veto power over unions that seem particularly conflictual or problematic. The Ministry of Labor must also approve all collective bargaining agreements, and exercises a role both in ongoing negotiations and when arbitration is needed to settle disputes. It also must give approval for all strikes and work stop-pages. The law sets a high legal standard in terms of union voting requirements to authorize a strike, and facilitates intervention in the case of strikes.

In addition, unlike many other nations, Peru did not allow state-sector unions until relatively late. Government workers, including not only bureaucrats and administrators but also doctors, postal workers, and teachers, were not allowed to unionize until the 1960s (Law 11,377). The workers in the public sector, who make up roughly 9 percent of total employment, or about twenty percent of formal sector employees, were thus unable to engage in collective bargaining, and saw their wages and other benefits determined by the state government apparatus.

(p.134) Summary

Peruvian labor law thus embodies several contradictions. It combines strong individual protections with limited coverage, and significant ease in forming unions with an environment that cannot support many of them. Table 5.A (at the end of the chapter) summarizes the development of labor laws by govern-mental period. Section 5.2 describes the “preincorporation” conditions that gave rise to Peru's first set of labor laws, which are detailed in Section 5.3. Section 5.4 examines the period of far-reaching reform under Alberto Fujimori, and Section 5.5 takes up the post-2000 governments' halting efforts to bring greater coverage or protectiveness to labor regulation. Throughout, I highlight the role of Peru's limited and concentrated skilled sector, on the one hand, and relatively small and fragmented union movement, on the other, in producing these labor law outcomes.

5.2. The Origins of Peruvian Labor Legislation

Unlike Chile and Argentina, which drew significant segments of their working populations from skilled or semiskilled European immigration, Peru's work-force was homogenous and low skilled in the early years of the twentieth century. Indeed, Chapter 2 showed that primary school enrollment in Peru lagged significantly behind that of its neighbors in the first half of the twentieth century, with only about half as many of its citizens receiving a basic education. This had far-reaching effects, as only 32 percent of the population were literate as late as 1925 (when Argentina already saw more than 60 percent literacy). But there was tremendous regional variation, with urban centers (such as Lima) achieving 50 percent literacy.

Labor recruitment practices, geography, and the structure of production also conspired against the development of extensive collective action by Peruvian workers. Peru faced labor shortages that were similar to those in Chile, but the results were very different. Mines and plantations tended to be located closer to population centers. When enganche was employed to attract workers, it did not exercise the same hold over them. Indeed, many workers would desert their jobs to go home for long or short periods, to tend crops or to be with family (Flores 1993). Worker organization was much more limited as a result. The transience of the mining and plantation workforce meant that early mutual aid societies were poorly funded, and early unions were smaller and weaker than observed in (p.135) Chile. Where Chilean workers had incentives—given by geography—to work together to improve their living and working conditions, Peruvian workers could simply leave and go home (Carnes 2014).

And since manufacturing was so slow to develop (as was seen in Table 2.5), Peruvian workers were slower to move to cities and find common cause with fellow citizens in factories. Indeed, until 1950, “industrialization had made less headway in Peru than in other South American countries of comparable size” (Thorp and Bertram 1978: 261). Employment remained concentrated in the agricultural sector well into the 1970s. Even as late as 1950, agriculture employed 58.9 percent of the economically active population, and this number fell only slowly over the next two decades, reaching 52.8 percent in 1961 and 44.5 percent in 1970. Given the geographically diffuse nature of agricultural production, there was very little opportunity for national-level collective action and very little threat of sustained hold-up in the economy. Disputes and strikes, while at times substantial in size, tended to be local, short-lived events. Over the same period, manufacturing employment showed almost no growth, moving from 13 percent of the workforce in 1950 to 13.5 percent in 1961 and 14.5 percent in 1970 (all figures are from Thorp and Bertram 1978: 259). Urbanization was still limited and had not yet created a critical mass of workers with shared interest in industry. The urban labor market displayed considerable slack, further hindering collective mobilization. In 1956, urban unemployment stood at 5 percent and underemployment at 25 percent; by 1967, these figures were largely unchanged at 31 percent combined un-and underemployment (Thorp and Bertram 1978: 273).

In addition, much of the early need for labor in Peru was filled by importing workers from China; roughly 87,000 workers entered the country between 1850 and 1874 (Chang Rodríguez 1958). By increasing the supply of available labor, these additional workers diluted the ability of Peruvian workers to make demands for better wages and working conditions. And since these workers were not considered citizens, and because of significant racial prejudice, there was little opportunity for building solidarity between them and Peruvian or European workers (Gonzalez 1989). The Chinese immigrants were not included when later labor laws were developed; indeed, their employment set a pattern for a kind of “extralegal” employment in Peru.

Finally, literacy and land-holding requirements for voting effectively disenfranchised both indigenous Peruvian workers and the imported Chinese workers. In the second half of the nineteenth century, electoral participation was (p.136) around 1 percent of the population (Colomer 2004; Engerman and Sokoloff 2005; Paredes 2008), and this pattern would continue well into the twentieth century. Indeed, even as late as 1963, only 45 percent of citizens had voting rights, and literacy requirements were not removed until 1979. Thus worker interests were never a significant electoral concern to democratic politicians, and labor legislation was slow to develop.

Nevertheless, some workers did begin organizing during this “preincorporation” period, generally in isolated pockets in the cities (around crafts) or in some mining regions. The first calls for labor regulation came from the mines and the ports—much as in Chile—where workers sought the adoption of an eight-hour workday. In 1913, dock workers in Lima were the first to receive this protection; they were followed by other urban workers in 1919, in 1929 by sugar workers, and finally in 1931 by miners (Bernedo 1990: 24). Cook (2007) summarizes this period of piecemeal legislation by quoting Angell (1979): early “Peruvian labor law was ‘a collection of scattered measures dictated by oligarchical regimes to favor the arbitrary action of the employers.’” She continues, “[T]he Peruvian labor movement remained relatively weak and did not pose a threat to government or employers until the 1970s” (106). Hold-up power was lacking. Peru's labor force was homogenously low-skilled and interchangeable. Union organization developed very late. And the state lacked the administrative apparatus and bureaucracy to competently take the lead in structuring a strong labor policy. The result was labor regulation that developed much later than that of other countries, and tended to be modeled on (and only applied to) the needs of the few well organized and best skilled workers.

5.3. The Evolution and Manipulationof Labor Laws, 1933–90

In terms of the theory developed in Chapter 1, the minimal labor law provisions that developed in the early twentieth century fit with the low-skill work-force and weak organizational profile of nascent unions. There were very few workers with skills sufficient to set them apart in the productive process; they could not make demands for extensive job stability or workplace treatment provisions. In fact, given the relative slack in the labor force, they may have feared that making labor legislation onerous would hurt their own opportunities for employment. Likewise, workers had not developed their organizational capacity (p.137) to reasonably pose a hold-up threat to the economy. In isolated circumstances, they could present a credible threat of stopping production at their own firm, but linkages across worker organizations were too weak to coordinate broader action. And conversely, the state and holders of capital were capable of employing their repressive apparatus to squelch incidents of labor unrest.

Nevertheless, labor regulation did develop, and as we will see below, in some periods became extremely protective of employment stability. This was largely driven by the political interests of leaders seeking office or already in power, who sought to build a coalition of supporters from the labor force. These measures were wildly out of proportion to the productive capacity of the economy, and were repeatedly dismantled or diminished by subsequent governments. In the short term, they were able to have a meaningful impact on labor relations, but they were unsustainable in the long term.

The first systematization of a labor code came under the government of Oscar Benavides in the 1933 Constitution and 1936 Civil Code (Castro Rivas 1981: 13–15). The impetus came not from the concerted demands of a crucial and well-organized labor force but instead from growing international and domestic concern about the “social question” of just treatment for workers. The first laws guaranteed an eight-hour workday, weekend rest, prohibition of employment to children under fourteen years of age and limits on the employment of those under eighteen, equal pay for equal work, and compensation for workplace injuries (Castro Rivas 1981: 15).

Labor law development moved at a slow pace, commensurate with the slow industrialization of the country. Until the 1960s, Peru had only small, isolated pools of workers who were united by either interests or geography for under-taking collective action. Government policy did not encourage the formation of additional unions. In fact, early mining and manufacturing unions formed without any government oversight or support, operating without any legal status but in many cases achieving some regularization in their contracts. Federations and confederations developed opportunistically as well, with the communist-inspired Confederación General de Trabajadores del Perú (CGTP) emerging in 1929, made up of truck drivers, textile workers, graphic artists, motorists and conductors, dockworkers, beer workers, and miners. However, taken together, these workers constituted less than 20 percent of the labor force. Nevertheless, their early organizing efforts were sufficient to draw the attention of the military government of General Oscar Benavides, who created a registry of labor unions (p.138) at the Ministry of Public Health in an effort to curtail union formation (Yepez del Castillo and Bernedo Alvarez 1985: 14–15). The economic growth of the 1940s led in 1944 to the foundation of a second major labor federation—the Confederación de Trabajadores del Perú (CTP)—that quickly came to ally itself with the APRA party. However, the military government of Odría (1948–56) brought severe repression, especially of the CTP, and set back the union movement significantly (Yepez del Castillo and Bernedo Alvarez 1985: 16).

Nevertheless, unionization began to reach a sufficient size to threaten serious losses in the event of work stoppages, and labor's organization made it attractive to successive governments seeking to cement popular support. But divisions in the labor movement made an alliance with a single political party or movement, as we will see occurred in Argentina, impossible. Both democratic leaders and military governments sought partners in the labor movement, and to woo them they offered considerable expansions of both individual and collective labor laws. The return of democracy saw the Prado-Ugarteche government grant a crucial organizing privilege: leave from work for union representatives to conduct collective bargaining. It also made the critical first overtures toward job stability, mandating severance pay.

But it was the left-leaning Revolutionary Military government of Velasco Alvarado that went furthest in creating opportunities for union expansion (Cameron n.d.).2 With its Plan Inca, it sought to create a “capitalism of the state” (capitalismo de estado). Aggressively implementing ISI policies, cutting off imports and investing in industrial development, it greatly increased the size of the state by expropriating foreign-owned industries and expanding public-sector employment (Contreras and Cueto 2000: 326–31). Basic industry was to be under the monopolistic management of the state under the Ley General de la Industria, and workers were to be integrated into this development plan as part of the “industrial communities” that would participate in the leadership and profits of the state-run firms (Parodi Trece 2000: 105). These bodies presented ripe opportunities for organizing unions and exercising state control over labor in critical industries.3

During this period, labor was becoming (and intentionally being converted into) a big enough bloc—both for elections and public manifestations—that it could affect considerable segments of the economy. But labor did not coalesce into a single, organized force, and no single partner was able to capture its sup-port; workers remained divided in several confederations. APRA would have (p.139)

Contradictions, Divisions, and Competition:Encompassing Labor Regulation in Peru

Figure 5.1. Union Organizations Receiving Government Recognition in Peru, 1933–82. Source: Author’s calculations based on Yepez del Castillo and Bernedo Alvarez 1985

been a logical political partner, because of its ideological affinity with labor's interests, but it was outlawed during several periods. And even when APRA was legally permitted to operate, it failed to command electoral majorities. Without a lasting partner in APRA, labor's votes were sought by a succession of governments. This process set off incremental expansions of the labor code. And in general, once rights were granted in the law, they were slow to be dismantled by subsequent governments. The legal rights established during this period would have a lasting impact, even if their coverage and enforcement would prove wanting.

Figure 5.1 shows the number of union organizations receiving government recognition, by economic sector, in each of the governmental periods from 1933 to 1982 (data is fromYepez del Castillo and Bernedo Alvarez 1985). Unions expanded very slowly through the 1940s and 1950s, a time when Peru remained heavily focused on agricultural production for export (unlike many of its Latin American neighbors that had turned their economies inward in an effort to industrialize). There is a significant upturn during the government of Manuel Prado Ugarteche (1956–62), a conservative who had in a previous presidency (1939–45) built a coalition with the left-leaning APRA party, and in this second term was trying to draw their voters into his base.


Table 5.1. Number of Strikes, by Government, 1957–84



Yearly Average

Prado 1957–62



Military 1962–63


Belaúnde 1963–68



Military-Velasco 1968–75



Military-Morales 1975–80



Belaúnde 1980–85



Source: Yepez del Castillo and Bernedo Alvarez 1985.

But with the arrival of the Velasco military government, union registration took off. Although manufacturing employment did not grow rapidly, manufacturing's share of total domestic product did (from 14 to 20 percent), and this created additional resources that could be shared with workers in industry.Workers could see that there was a prize worth fighting for. Manufacturing led the pack in this period of rapid union expansion, but other skilled sectors, including banking and commerce, also saw rapid organization of new unions. In fact, the growth in unionization was economy-wide, with even agriculture and services seeing a rise in registration of unions.

Another indicator of growing union capacity can be found in strike activity. Table 5.1 displays the number of strikes, by government, from the Prado government until the second Belaúnde government. Unions were clearly increasing their ability to mobilize and undertake action, but the large numbers of strikes also bears witness to the lack of coordination in the movement during this period. This disorganization undermined workers' ability to make coherent demands for labor legislation.

The legacy of division among union confederations prevented their acting solidaristically. Segments of the labor force acted opportunistically, with the CTP in particular taking advantage of ties to APRA to win benefits for itself during the Prado government. Observing the politics surrounding labor in the 1960s, Payne classically argued, “The labor movement in Peru … is politically oriented. This orientation is not primarily toward achieving favorable legislation (p.141) through elected representatives and lobbying. Nor is it directed at the formation of a single labor party designed to gain control of the executive” (Payne 1965: 11). Relatively small, fragmented groups of unions often competed, rather than cooperated. The collective legislation that developed further supported this conflicted equilibrium: it made registration of unions fairly easy, but did not facilitate coordination to achieve shared goals.

The Origin and Evolution of Job Stability Legislation

As noted above, job stability formed the centerpiece of Peruvian individual labor legislation. These laws developed in a series of stages—they began in the severance pay measures established by Prado Ugarteche; they were promoted during the military government of Velasco Alvarado; they were weakened in the second phase of the military government, under Morales Bermúdez; they were once again strengthened substantially through their inclusion in the 1979 Constitution; and they were further emphasized and strengthened under the APRA-government of Alán García (Pasco Cosmópolis 2002: 13). They underwent their most significant reduction under Alberto Fujimori.

The high severance pay enacted by decree under Prado Ugarteche—equivalent to one month's salary for each year of service—provided significant job protection to workers by raising firing costs during the late 1950s and 1960s. A new standard was set, though, by the Revolutionary Government, which enacted Decree Law 18,471 (10 November 1970). This measure guaranteed the job stability of workers. It allowed workers to be fired only for “grave faults” committed by them or if the firm was completely shutting its doors or restructuring (and this required the authorization of the Ministry of Labor). Further, dismissed workers had the right to sue for reposition, and employers found in violation were required to provide back pay for missed work plus an additional three months' wages (later increased to twelve months' wages) and could face criminal prosecution (Castro Rivas 1981: 20–22). In the law's first years, employers responded by reducing their demand for new workers, on the one hand, and flooding the Ministry of Labor with requests to restructure and dismiss workers. But the government wanted to cement its relationship with labor, so it passed Decree Law 21,116 (11 March 1975), which conferred “absolute” job stability through the system of “compensation for time of service” (Compensación por Tiempo de Servicios, CTS) noted above, that made firing even more impractical for employers (Castro Rivas 1981: 25–27).

(p.142) These 1970 and 1975 stability laws stand as the high point in individual labor protection in Peruvian history, and they became a constant point of reference for workers in later discussions. However, their “absolute” status was remarkably short-lived, for they were not congruent with the skill levels in the economy and they were only weakly calibrated with labor's ability to hold up the economy. Indeed, the laws were a blunt instrument. In seeking to construct a coalition with decisive industrial sectors, they offered the same rights to a broader swath of workers who could make no credible claim to organization, work stoppage, or even coordinated voting. Thus in 1978, the more cautious military government of Morales enacted Decree Law 22,126 (21 March 1978), limiting the application of the previous job security laws to workers employed prior to 1978. All new employees were governed by new stipulations, which stated that after three months' probation, workers were entitled to “relative job stability.” This meant that in the period between three months' employment and three years' employment, they could be dismissed with ninety days' notice (Castro Rivas 1981: 29–30). Workers that attained three years of uninterrupted service with the same firm were entitled to the “absolute” job stability provisions. This set up two employment tracks, one of absolute stability for those workers who had passed the three-year minimum of employment and another for those who had not attained that longevity. It also created considerable incentives for employers to ensure that their workers did not achieve the fuller, privileged status: they could dismiss and rehire them, and thus avoid owing them “absolute” stability. For the government, these reforms divided labor between a protected traditional base and unprotected newcomers, who were less critical for maintaining power.

Finally, the Constitution of 1979, in its Article 48, recognized the right of the worker to job stability. This did not so much further extend the job stability provisions as make them a basic reference point in the legal code, stating that firing could occur only for “just cause” (Cook 2007: 115).

The return of democracy, and the return to the presidency of Belaúnde in 1980, now at the front of the moderate Alianza Popular, did not lead to a further expansion of labor rights. Rather, high unemployment, declining real wages, and the increasing resistance of employers to the job stability provisions produced a decade of decline in the power of organized labor (Cook 2007: 15). In addition, the ties that had developed between segments of the labor force and the military during the military regime made labor an uncertain and untrustworthy partner (p.143) for Belaúnde. No significant labor regulation was passed, evasion increased on the part of employers, and informal employment was on the rise.

This pattern might have been expected to change under Alán García, the first president to come from the APRA party. To labor's delight, he enacted in June 1986 Law 24,514, which reaffirmed the job stability ideals from 1970 by restoring three months' severance pay for workers employed for less than a year (and increasing the severance pay to six months' wages for workers employed from one to three years, and to twelve months for those employed for more than three years). Yet, facing pressures and a mounting economic crisis, García also enacted an Emergency Employment Program that allowed employers to hire without requirement to pay benefits or ensure job stability (Cook 2007: 16, fn. 12), offset-ting his job stability measures with a way around them.

This outcome set the tone for Peru's labor market in the post-absolute-job-stability era. On the one hand, the laws sought to continue to meet the needs of the traditional, industrial labor base, for which job stability was a particularly coveted prize. But on the other hand, they sought to address an increasingly heterogeneous group of nontraditional workers, some of whom were unemployed but seeking formal sector employment, some of whom worked primarily in the informal sector or in self-or family-employment, and some of whom mixed their economic activity among these possibilities. Thus García played to the interests of the higher-skilled workers in industry and professional services and government by restoring full job severance packages, while reaching out to lower-skilled workers who found themselves unemployed or in the informal sector with the employment promotion plan.

By the 1980s, limited union membership and limited coverage of labor laws was the norm in Peru. Table 5.2 displays the rate of unionization in 1981–82. As noted above, although the bar is set low by regional standards for registering a union, unionization remains quite low. In the late-industrializing, small-firm, high-informality context of Peru, most workers do not find themselves in firms where union membership is even a possibility. The first column in Table 3 shows that unionization is quite high in firms where unions are possible—67.8 percent in the country as a whole, and 73.4 percent in Lima. But, as a percentage of all salaried workers, the figures are much lower—39.1 percent in the economy as a whole, and 52.8 percent in metropolitan Lima. And finally, as a percentage of all workers in the economically active population, union membership only reaches 17.5 percent. This factor, combined with the divisions in unions previ (p.144)

Table 5.2. Unionization in Peru, 1981–82

As share of union-eligible workers

As share of all salaried workers

As share of all workers








Rest of Country



Source: Yepez del Castillo and Bernedo Alvarez 1985.

Table 5.3. Coverage of Collective Bargaining Agreements, by Sector, 1981


Share of Economically Active Population


Share of Economically Active Population

















Source: Yepez del Castillo and Bernedo Alvarez 1985.

ously noted, means that the modal worker in Peru is neither unionized nor in stable, formal-sector employment.

Similarly, coverage of collective bargaining agreements is also limited. As Table 5.3 shows, less than a third of the economically active population has its wages or working conditions decided in collective negotiations. However, there is significant variation in the coverage by economic sector—industrial, utility, mining, and construction workers are far more likely to have collective bargaining than are workers in agriculture, transport, or commerce. While collective bargaining coverage is not a perfect proxy for the application of all labor laws, it does give some sense of the portion of the workforce that sees its fate as tied to the collective action of worker organizations. Taken together, the data in Tables 5.2 and 5.3 suggest that labor law application is limited to between one-sixth and one-third of all Peruvians; yet, in sectors where it applies, it is quite important.

In sum, the Peruvian labor code and labor market by the 1980s displayed several divergent trends and contradictions. First, individual labor law was highly protective for those on permanent contracts. The military governments of the 1970s and the García government had made job stability the foundation for Peruvian individual labor law. However, this rigidity was complemented by measures to promote employment on temporary contracts. And a significant side effect was increasing evasion on the part of employers and the growth of informal (p.145) employment. In collective labor law, unions were relatively easy to form, but divided into several confederations and thus quite weak in their political impact. Two competing goals coexisted in the labor code: one focused on permanent employment and significant worker organization, and the other centered on flexibility and worker turnover.

5.4. The Fujimori Reforms

The government of Alberto Fujimori—who came to power in the midst of economic and political chaos, and who increasingly accrued powers to himself by dismissing Congress and governing by decree—represents a decisive turning point in the labor legislation of Peru.4 Indeed, Fujimori's labor measures represent the fullest legal embrace of the bifurcated labor market that has come to characterize Peru, divided between secure formal-sector employment and vulnerable short-term employment. In the individual labor regulation arena, it created permanent legal means for hiring workers on temporary contracts. Thus it fundamentally altered the law's primary orientation toward job stability. And in the field of collective labor regulation, it established the principle of union pluralism and privileged firm level collective-bargaining, thus further weakening and fragmenting union organizations. Fujimori's success in implementing these reforms is attributable to four factors: (1) a strategy of rolling out reforms so that they only came to touch insiders last, (2) the small group of insiders and low public support for unions, (3) the fragmentation of those unions, and (4) his own popularity after restoring the nation's economic fortunes and combating the Shining Path guerillas.

In attacking the principle of job stability, Fujimori strategically rolled out the reforms in two phases. In 1991, Decree Law 728 introduced nine new “modalities” of short-term contracts—including those for the start of a business, for reconverting a business, and even for the broad category of “market necessities” (Vega Ruiz 2005: 99).5 These effectively gave employers wide latitude in hiring workers on temporary contracts. In addition, Fujimori chipped away at job stability measures by removing them for workers hired after 1991 (Cook 2007: 122). Thus he avoided angering workers already in protected jobs, and he simultaneously catered to the unemployed, who were eager to find even temporary employment.

By the mid-1990s, Fujimori had brought inflation down from 139 percent (p.146) in 1991 to 15 percent, and the economy was growing at a rate of 12.5 percent (Cook 2007: 121). On the basis of this economic improvement, he felt he could undertake a second round of reforms. His 1993 Constitution removed the principle of absolute job stability from the earlier 1979 Constitution, instead requiring only “adequate protection against arbitrary dismissal” (Cook 2007: 123). And Law 26,513 in 1995 did away with job stability for all workers, not simply those hired after 1991. Thus by the mid-1990s, Fujimori had effectively eliminated the principle of job security from the labor code. As will be seen below, severance pay remained fairly high, but even it was reduced, and it came to cover only about a fifth of the population.

Fujimori also undertook a broad reform of the collective labor code. Early on, he weakened unions by removing protection for union leaders when in office or carrying out their union duties (the fuero sindical). This, of course, hindered their ability to organize opposition to his first round of reforms. And in 1992 he introduced a Law of Collective Relations (25,593), which further fragmented unions, by allowing more than one union at the firm level, and by complicating the procedures for collective bargaining and strikes (Cook 2007: 123). Fujimori also dealt decisive blows to state-sector workers, reducing employment in federal jobs from 633,349 to 294,979 between 1990 and 1993 (Mejía 1998: 24).6 Thus by the mid-1990s, while unions were easier to start (given the new provision for union pluralism at the plant level), most collective bodies had a harder time negotiating contracts and taking broad-based action through strikes.

In addition to riding the wave of his successes at bringing inflation under control and making significant headway against the violence and terrorism of the Shining Path guerillas, Fujimori was aided in his labor reforms by several factors. First, the reforms were poorly understood; in a 1996 poll, 47 percent of respondents said they were not informed about the labor law modifications carried out by the government. Perhaps as a result, disapproval of these labor laws was only 51 percent, and curiously, the young (age eighteen to twenty-five)—who were most likely to experience the effects of the reforms—were also the most likely to be uninformed, and to approve of the reforms (Grupo Apoyo: November 1996). The complexity of the measures may have made possible negative consequences less apparent to them (such as the foreclosed opportunities for job stability), while the promise of “flexibilized” opportunities to be hired attracted their support.

Second, unions enjoyed very little public confidence in Peru, and their status only diminished in the public view during the 1990s. Indeed, during this period, (p.147)

Contradictions, Divisions, and Competition:Encompassing Labor Regulation in Peru

Figure 5.2. Confidence in Peruvian Political Institutions, 1989–98. Source: Polls administered by Grupo Apoyo.

unions were among the least trusted political institutions. Figure 5.2 displays polling data on the confidence of Peruvians in various public actors and collective bodies. For most of the period of Fujimori's government, unions were the second least trusted group, surpassed only by political parties (which enjoyed less than 20 percent support). This was a deadly combination, for it undermined both of the crucial actors that could underwrite labor-friendly laws: unions which could hold up broad sectors of the economy and parties that could ally with them to enact policy.7

By the end of the 1990s, union members clearly stood as a group apart within Peruvian society, and for this reason it is not surprising that many nonunionized workers did not trust them. Union workers were “more likely to be more educated, older, and with significantly longer tenures than non-unionized workers. They were also more likely to work in a large firm and to have a permanent contract” (Saavedra and Torero 2002: 13). In addition, after Fujimori's reforms, temporary workers had an even lower probability of working in a unionized firm (Saavedra and Torero 2002: 14). In short, little likelihood existed for solidaristic behavior between these two groups of workers.

In contrast, the main social actors promoting the liberalization of labor laws (p.148) were extremely popular. Private enterprise had embraced a more public, political role during the Fujimori years, taking on a strategy consisting of “finance of electoral campaigns, effective lobbying work in Congress, and greater influence in the means of communication” (Durand 2006). The corporate, private sector was highly esteemed by the general population at the end of the 1980s, with an approval rating of 63 percent. State-run enterprises, on the other hand, had only a 34 percent approval rating in 1990, and this figure fell to 16 percent in 1991.8 The public appraisal of private enterprise began to fall in the later years of Fujimori's presidency, but it still remained over 50 percent through 1998. Finally, Fujimori himself enjoyed remarkably high ratings throughout the majority of his presidency, most especially during the years when he was most forceful in facing the Shining Path and in passing his sweeping economic reforms.

This does not mean, however, that labor law changes always went unnoticed or unopposed. The case of severance payments provides a good example of organized resistance. Mandatory severance payments were intended to be decreased in 1996, from one month's salary per year of seniority of the worker being dismissed to one-half month's salary per year. However, when the draft regulation made its way into the news, the public outcry was so great that the government conducted an abrupt about-face: it announced that the proposed decrease in severance pay was in fact a typographical error, and that their true intention was to increase severance pay by a half. The result was a more generous, rather than less generous, severance pay calculation (Saavedra 1999; recounted in MacIsaac and Rama 2001).

This incident concerning mandatory severance pay is highly revelatory of the politics surrounding labor regulations in Peru. First, it shows that the appeal of severance pay is broader than its coverage. Even workers who do not meet the requirements to be eligible for it (including sufficient time in a particular job and “permanent” status) are willing to mobilize around it, or at least express their outrage. This may reflect their expectation that they will eventually achieve permanent status in their jobs and enjoy the protection of the severance pay provisions. Second, it makes clear that the government recognized the threat posed by dissatisfied workers, even if many of these are not directly included in these policies or many are not unionized.

Finally, it may indicate that these measures, while popular, are less costly than they appear. Since coverage is limited to about one in five private sector work-


Table 5.4. Collective Bargaining Agreements and Their Coverage, 1990–96























Source: Rueda-Catry, Sepúlveda-Malbrán, and Vega Ruiz 1998. Coverage figures are for workers in Metropolitan Lima only.

ers (and one in three private-sector wage earners) (MacIsaac and Rama 2001), increases in this policy do not affect most employers. Arguably, the previous policy was high enough that the firing of long-time workers was highly un-likely; adding to the figure did not make the firing of any of these workers (and being subject to the required severance pay) any less or more likely. And since fixed-term contracting options provide many opportunities for hiring workers without incurring the cost of high severance pay, employers could anticipate that they would not suddenly be burdened with a large number of severance-pay-eligible—and demanding—workers.9

Unions are hurt, too, by their divisions and inability to coordinate. As Yepez del Castillo and Bernedo Alvarez (1985) summarized for the 1980s, “The existence of parallel unions is still observed in important sectors. This is the case of workers in the metals industry, in which there exist two federations and union division has impeded a unified response by the workers in one of the sectors most hurt by the recession. The ongoing confusion between union and party in some sectors of the left [has] led them to forget the character of a unique front of unions” (93). At the end of Fujimori's government, one commentator called the unions “totally disarticulated and broken” (Romero Montes 2002: 96).

Thus the effects of the Fujimori reforms were substantial and far-reaching. The use of fixed-term contracts increased, significantly reducing costs to employers but also raising the “precariousness” of employment relations for workers. Unions saw a drop in their membership numbers, while collective bargaining declined in both the quantity and quality of the measures it considered, frequently introducing productivity requirements for wage increases and over-turning long-standing legal protections for workers (Pasco Cosmópolis 2002: 26–27). Table 5.4 presents the number of collective bargaining agreements from 1990 to 1997, making clear the pattern of declining numbers. Unlike in Argen (p.150) where the decreased number of total (mostly firm-level) agreements was compensated by greater use of sector-level agreements (Etchemendy and Collier 2007), in Peru no such substitution occurred. Collective bargaining declined by approximately two-thirds under Fujimori, and coverage of these agreements declined by three-quarters, so that only 7.4 percent of the workforce had their employment relations governed by collective bargaining agreements in 1996.

5.5. The 2000s: Hints at Change, but No Substantial Reforms

Since 2000, Peru has made only marginal changes in its labor laws. While Chile saw gradual expansions of rights under the Concertación, and Argentina (as will be seen below) witnessed a significant revindication of privileges for organized labor in the early years of the Kirchner governments, Peru never implemented significant enhancements of its labor code. It continues to provide strong job security measures for a fairly small subset of its workers—roughly one-fifth of them—and leaves the remainder of workers in temporary contracts or the informal sector. Collective labor law, although marginally strengthened, perversely creates additional opportunities for division in the labor movement, and has not fostered unified pressure for further changes in the labor code.

Worker divisions and a “low-skill trap” (Schneider 2009) greatly complicated effective mobilization for labor law improvements. The Peruvian labor market in the 2000s was highly bifurcated between those covered by full labor protections—estimated at 21 percent of private wage earners with stable job contracts—and those who are not (García 2004).10 A vicious circle emerged: with permanent, higher-skilled jobs so scarce, workers were discouraged from pursuing the education or training that would make them eligible for them. And few employers were willing to invest in training for nonpermanent workers; high-rotation industrial firms, which make extensive use of temporary contracts, had only a 28 percent chance of investing in worker training compared with their more stable counterparts (García 2004: 31). Thus the restrictive, bifurcated system tended to replicate itself.

Thus conditions similar to those that existed in earlier periods—relatively homogeneous skill levels and limited and poor labor organization—complicated any change in the labor laws inherited from the Fujimori years. While educational levels rose, employment on permanent contracts did not keep pace; better-skilled workers seemed to be absorbed into temporary, rather than permanent, (p.151) jobs. Labor unions remained divided—principally between the CGTP and the CTP—and lacked a strong political party partner, and thus were often unable to present a unified front vis-à-vis employers or the state. As a result, both the Toledo and García governments that came to power in the 2000s made only marginal changes to the labor regulations; indeed, the latter introduced several measures but failed to see them through the congressional approval process.

Alejandro Toledo: 2001–6

After Fujimori stepped down and was succeeded by the brief care-taker government of Augustin Paniagua, Alejandro Toledo came to power. The political campaigns of both 2000 and 2001 revealed how Fujimori's rule, and his inclusion of measures in the 1993 Constitution geared toward participative and more direct democracy, essentially undermined the role of parties in the nation.Tanaka summarizes the weakness of parties in the Peruvian system: “[F]rom the middle of the 1990s onward, in Peru there exists a politics without parties: politics is carried out by actors marked by dis-ideologization; personalism; volatility, improvisation, and precarious leadership; short-term thinking; excessive pragmatism; all of which have as a consequence the impossibility of making calculations about the medium-and long-term, and complicates the development of collective activity” (Tanaka 2005: 22). This lack of viable, meaningful parties with long-term orientations meant that labor had no institutional means to bring its demands for a softening of the Fujimori reforms into the restored democratic arena.

Toledo was a particularly unconnected political player. Formerly an academic and consultant to the World Bank, International Labor Organization, and other international organizations, he had entered politics in the 1995 presidential campaign, gaining just 3 percent of the vote. In 1999 he was still polling just 6 percent support. But as the campaign developed, he postured himself as the candidate who could best complete the “democratic transition” after the Fuji-mori years. Although he failed to win election at that time, his 37 percent of the popular vote (second to Fujimori, amid allegations of electoral fraud) made him a top contender after Fujimori was forced to allow a second election in which he would not participate. In that set of elections, Toledo won a run-off with Alán García, with 53 percent of the vote to García's 47 percent (Tanaka 2005: 24). His centrist party, Perú Posible, won only 45 of the 120 seats in the Congress, so he had to ally with the more conservative Frente Independiente Moralizador (the Independent Moralizing Front—FIM, as it is abbreviated in Spanish).

(p.152) Thus Toledo came to office without ties to labor and with a coalition that allied him more directly with the representatives of business. To the extent that labor had tied its fate to a party, this had been with APRA. Unlike in Argentina, where the returns of democracy frequently unleashed significant labor-friendly reforms in response to pent-up demands, in Peru the democratic government of Toledo did not place an emphasis on reaching out to labor. This was in part a reflection on the coalition that had elected it, and in part the result of the much weaker status of labor in making demands of the state. But after five years of declining strike activity, unions took to the streets in increasing numbers in each of the first three years of Toledo's government (Tanaka 2005: 34). However, this growing strike activity was still lower than had been experienced in the Fujimori years.

Changes to labor laws were confined to marginal changes in the laws inherited from the Fujimori years. On the individual labor regulation front, Toledo permitted employers to expand the workday and work week for individuals not employed at the maximum time (Supreme Decree 007–2002-TR of 2002). His government also gave workers greater opportunities to use 80 percent of their accumulated savings in the CTS system for the purchase of a home (Law 28,461 of 2005). Also, further legal oversight of temporary, training contracts was provided in an effort to ensure that these be used in a genuinely formative—and not exploitative—way (Law 28,518 of 2005). A law against sexual harassment in the workplace was passed (Law 27,942 of 2003).

Collective labor relations under Toledo saw greater organizing potential and protection given to unions, and the restoration of many freedoms that had been foreclosed by Fujimori. Law 27,912 of 2003 removed the prohibition on political activity by unions. Further, it allowed workers to join unions more easily, eliminating a job tenure requirement, and reduced the number of required workers to begin a new union from one hundred to fifty. Greater union freedom in choosing leadership was granted, again through eliminating requirements for longevity in the firm. In addition, collective bargaining at the sector level was expanded, but only to unions representing the majority of workers and firms in the industry; otherwise, collective bargaining was restricted to the firm level. Finally, the law facilitated strikes by removing the requirement for a secret ballot of union members prior to undertaking the strike.

(p.153) Alán García: 2006–10

García's return to the presidency, at the head of the traditionally more left-leaning APRA party, seemed to augur opportunities for more labor friendly labor legislation. However, the process of rehabilitating himself as a viable candidate, and his tightly contested race with the nationalist Ollanta Humala, resulted in García's adopting a much more centrist, or even center-right, political stance. Labor unions, although divided, looked at him with a certain amount of suspicion, and they brought pressure to bear for a revisiting of both the pension privatizations and the labor contract flexibilizations of the 1990s. García gave both of these issues significant play in the electoral campaign, and immediately brought them into discussion once elected. However, these efforts did not result in significant changes in Peru's labor legislation.

In an early overture to better-off, formal sector workers, he quickly assembled a plan to allow the “free disaffiliation” (libre disafiliación) of workers in the privatized pension system. This private system had become the object of much dissatisfaction. Even though it covered only 15 percent of the population, 60 percent had expressed their lack of confidence in the private funds.11 Much like the initial Kirchner plans in Argentina, this initiative was to allow workers to “revisit” their decision to join the private pension funds, and if they so desired, switch back into the public pension system. However, after much fanfare, the proposal was limited to only those workers who could demonstrate that they had been defrauded in the initial decision to join the private pension funds. The government projected that only 1,400 workers would be eligible, including 800 miners. In a system of 3.7 million private pension fund affiliates, and a total of roughly 28 million people in the country, this amounted to an almost inconsequential measure (even though the government estimated the cost of the reaffiliation of workers to the state system to be $1.4 billion) (El Comercio 2006a).

More attention was given to a reform of the labor law (a new Ley General de Trabajo), which promised to be deeper than those changes undertaken by Toledo. Unions called for a return of many of the privileges they had enjoyed under earlier governments—including the possibility of reinstatement for improperly dismissed workers (although unions were divided over whether this should involve a return of “absolute” job stability or not), increasing the maximum severance pay (from one to two years' salary, at which it had been capped under Fujimori), and collective bargaining at the sectoral level (El Comercio 2006b). Employers (p.154) opposed these measures as onerous, and stalled discussions in the National Labor Council. The minister of production, Rafael Rey, argued that the reform should be opposed because it would apply only to 14 percent of the workforce—those who were unionized and in permanent contracts (El Comercio 2006c). By 2007, the discussion of the new labor law was said to be approximately “85 percent” complete, but it eventually remained frozen in Congress without approval (El Comercio 2007).

Thus the García administration did not make significant inroads in reversing the trends of the Fujimori labor reforms. As Chapter 3 made clear, Peru stands out as a nation that underwent one of the most pronounced reforms in the region in the 1990s and then has not seen substantial modifications since.

5.6. Conclusion

This chapter has presented both an overview of the principal features of the Peruvian labor code through time and an explanation of the contrary currents in that labor code that have emerged to meet the need of a bifurcated labor market with weak, fragmented union organization. Peru's strong individual protections, and especially their emphasis on job security, bolstered by high severance payments, developed in embryonic form when APRA coalitions brought labor interests to bear in the legislative process. However, their greatest expansion occurred relatively late, when Peru embraced ISI policies under the Revolutionary Military government of Velasco Alvarado. This government sought to use labor legislation to cement a coalition that would underwrite its other economic reforms. Opposition from employers eventually led to some rollback on “absolute” stability but did not fundamentally change the prolabor orientation of labor legislation.

Massive reform came under Alberto Fujimori, who was less beholden to labor because he enjoyed such high popularity after bringing inflation under control and containing the violence of Shining Path guerrillas. In addition, polling evidence suggests that many people were not well informed about the complex legal changes he was making, and that this shielded him from significant opposition. And perhaps most important, while the labor law reforms reduced protections for the portion of the labor force that enjoyed them, they also included advances for labor in its collective relations and they facilitated the hiring of workers from the informal sector on temporary contracts. Thus the 1990s (p.155) although often considered harsh, actually catered to the interests of unemployed and informal sector workers, who in Peru make up over half the population. This helps explain why they have persisted, and why opposition in recent periods comes mainly from concentrated groups of workers in protected sectors—such as doctors in the state-run medical system.

One important contribution of this chapter is to challenge, or at least add additional nuance to, the literature on ties between left parties, unions, and labor legislation. Although Cook (2007) argues that “[t]hroughout the middle decades of the twentieth century, Peruvian labor's fortunes rose and fell with APRA's relationship with power” (106), and Collier and Collier (2002) describe Peru as a case of “party-incorporation” of the labor movement, the relationship between labor and APRA was in fact far from close or lasting. Indeed, one simple reason behind the linkage is the lack of other long-term parties in Peru; many parties have been extraordinarily short-lived, especially in more recent decades as Peru's party system has collapsed. While governments in Peru that affiliated with APRA were more generous in their response to labor in the early decades, they were not the exclusive suppliers of benefits to the workforce. Indeed, in the case of labor regulation, this chapter has shown that military governments have been the greatest innovators and agents of expansion (and contraction) of labor protections. The hallmark “absolute” job stability measure was passed under the Revolutionary Military government ofVelasco Alvarado and saw its greatest enforcement and coverage during his and the subsequent military government of Morales Bermúdez. It would seem that the strategy of striking bargains with the labor force is not the restricted province of left-leaning parties, but in fact may be advantageous to any political agent seeking to gain office or stay in office.

APRA has also failed to capitalize on its earlier, close ties to labor. The fragmentation that occurred in the 1960s under the Belaúnde government, as APRA became both opportunistic and particularistic, allowed for the emergence of rivalry among labor unions—the APRA-affiliated CTP and the communist-inspired CGTP—ultimately weakening the impact of the labor movement. And finally, during the periods in which APRA has controlled the presidency, the results on labor legislation have been at best mixed. The first García government had two contrary trends in labor legislation, with the return of job stability as a basic principle but a policy of employment promotion that effectively bypassed that principle. And the second García administration was not effective at enacting stronger labor provisions, even though these were raised and brought to (p.156) Congress. In both cases, the García governments were plagued by other problems—economic adjustments during the 1980s and the 2000s, and Shining Path violence in the earlier period. Why has the party that has the strongest linkages to labor also been one of the least likely to implement labor-friendly labor laws? The answer lies in the small size of the skilled labor force, and the poor coordination among labor unions, as this chapter has highlighted. These prevent labor from acting as a cohesive and coherent political force in Peruvian society.

In sum, the Peruvian labor code stands at one extreme of the possible labor law configurations predicted by the theory in Chapter 2 of this book. With a very small skilled labor force and small, fragmented unions that have little permanent linkage to political parties, the country does not have a unified labor movement or political expression of labor demands. Expansive labor laws have been enacted only under authoritarian regimes, and these laws have reinforced the patterns of skill acquisition and distribution, limited union membership, and fractured union solidarity. The current low levels of unionization and protection under individual labor laws for job stability and severance pay are not a new development, but a logical extension of the bifurcated labor movement that has characterized the nation for most of the last century. Given these deep economic structural roots, further proposals for redesigning the labor code are unlikely to produce meaningful change or lasting results.

Appendix Table 5.A. Labor Policy in Peru, by Government, 1933–2007



Labor Policy Developments



Piecemeal measures Individual Relations: Eight-hour workday for some workers



Individual Relations: Guaranteed an eight-hour workday, weekend rest, prohibition of employment to children under 14 years of age and limits on the employment of those under 18, equal pay for equal work, and compensation for workplace injuries. Some severance pay prescriptions Collective Relations: Registration of unions with Ministry of Public Health


Prado Ugarteche (promised APRA recognition)

No significant new labor legislation.


Bustamante y Rivero (alliance with APRA)

Collective Relations: Fostered union recognition and wage gains


Odría Military (APRA outlawed)

Individual Relations: Guaranteed sick workers the right to return to job

Collective Relations: Required Ministry of Labor approval for collective dismissals


PradoUgarteche Movimiento Democrático Peruano-Convivencia (alliancewith APRA)

Individual Relations: Set severance pay at one month per year of employment

Collective Relations: Gave union representatives leave from work tocarryoutcollective negotiations


Godoy Military

No significant labor legislation


Belaúnde Terry Acción Popular (alliance with APRA, which fractured as APRA joined conservative UNO coalition)

Collective Relations: Increased opportu nitiesforunion organizing


VelascoAlvarado Revolutionary Military Govt. –First Phase

Individual Relations: Created Industrial Communities to give workers participation in firm governance and profits. Decree-LawofLaborStability, increasing legal sanctions (fines and back-pay) for dismissal and allowing dismissal only for just cause and with government authorization, applied to workers after three months seniority


MoralesBermúdez Military Govt.—Second Phase

Individual Relations: 1978 Decree-Law eased dismissals for workers up to three years' seniority, but raised cost of firing after three years. 1979 Constitution incorporated the principle of job security as an economic right


Belaúnde Terry Alianza Popular

No significant labor legislation, but high unemployment and wage declines, as well as division among labor unions.


GarcíaPérez APRA

Individual Relations: In 1986, restored job stability through increased severance pay scale, but also started Emergency Employment Program that allowed employers to hire without paying benefits or assuming job security requirements


Fujimori Cambio 90 Perú 2000

Individual Relations: In 1991 Lawof Employment Promotion, introducedshort-termcontracts, youth contracts, flexible scheduling. Endedjobsecurityforpost1991contracts.Broadenedthepossible causes for dismissal and facilitated collective dismissals. Promoted subcontracting of services. Weakened severance protections. In 1995, lengthened time of short-term contracts. Replaced absolute job security with “adequate protection against arbitrary dismissal.” In 1996, raised severance pay

Collective relations: In 1992 Law of Collective Relations, established union pluralism. Promoted decentralized collective bargaining. Increased strike restrictions. Favored small unions over large unions. Gave more government oversight for unions Social Policy: Established private pension system in 1993


Toledo Perú Posible

Individual Relations: Permitted expansion of work day. Allowed use of 80 percent of worker's CTS funds for house purchase. Expanded legal oversight of formative (apprenticeship) contract terms. Adopted laws against sexual harassment in the workplace

CollectiveRelations: Removed prohibition on political activity by unions. Allowed workers to more easily join unions, and reduced the number of required workers to begin a new union. Allowed greater union freedom in choosing leadership. Limited collective bargaining at sector level to unions representing the majority of workers and firms in the industry—otherwise, collective bargaining restricted to firm level. Facilitated strikes by removing requirement for secret ballot of union members


García Pérez APRA

Individual Relations: Proposal to increase maximum mandatory severance pay from 1 to 2 years

Collective Relations: Proposal for greater freedom for sectoral collective bargaining

Sources: Castro Rivas 1981; Contreras and Cueto 2000; Collier and Collier 2002; Vega Ruiz 2005; Vilela et al. 2006; Cook 2007.

(p.157) (p.158)


(1) . Schneider and Karcher (2010) estimate that 65 percent of Peruvian nonagricultural employment occurs in the informal sector (632).

(2) . Collier and Collier (2002) place the incorporation period for labor earlier, in the 1940s, in the first APRA linkages to the labor movement. While (p.205) I agree that the 1940s were critical in laying the political relationships for later worker mobilization, I believe that the core features of Peruvian labor relations were set earlier (as outlined above). And I argue here and below that the key legal measures came later, in the second Prado Ugarteche government and, more important, in the Velasco Alvarado military regime.

(3) . The creation of “industrial communities” also allowed the state to coopt and incorporate long-standing bases of union organization into the state. Among the most successful of the communities were the Comunidad Minera and the Comunidad de Compensación Minera, both of which drew on the preexisting unions in the mining sector for their membership (Iguíñiz et al. 1985).

(4) . One commentator calls the rapid rise, and decisive power, of Fujimori, who had been a political outsider, the “tsunami Fujimori” (Tanaka 1998: 167).

(5) . The new modalities were for: beginning a new business or business activity; market necessities; reconversion of the business; short-term needs, including one-time, emergency, or supplementary needs; and characteristics of the work or service provided by the business, including specific, intermittent, or seasonal characteristics (Saavedra 2000: 392).

(6) . This dismissal of state workers not only affected them directly but also weakened the organizational potential of the labor movement around individual job protections in general. Survey data shows that state sector workers were better educated than private sector workers (Ruiz Pérez 1996: 222). The theory developed in Chapter 1 argues that these more skilled workers are key to union organizing and effectiveness, especially with regard to job stability provisions. By removing them from such positions, Fujimori transformed these workers from insiders into outsiders, and thus made them more likely to support his temporary hiring provisions in the long term.

(7) . In recent decades, Peruvian parties have become increasingly personalistic and short-lived rather than programmatic. Many are organized for the purposes of a single election, a practice followed by both Fujimori campaigns and Toledo's rise to power. Even APRA and Acción Popular, the parties with the longest histories in Peru, have largely become the vehicles of particular leaders in distinct periods of their existence.

(8) . I do not include a time-series for confidence in state-owned enterprises in Table 5.1 because Grupo Apoyo stopped including it in its polls in 1991.

(9) . A study of unions and their strategies in response to the Fujimori reforms (Mejía 1998) confirms many of the intuitions of the analysis to this point. One group of unions, including copper workers and some state workers, had leadership that remained intransigent and populist, and generally proved to be the biggest set of losers. Alternatively, many of the smallest and weakest unions turned to the CGTP as a source of material and organizational support, but given the diversity of these unions, the CGTP ended up fragmenting its lobbying efforts. And finally, the collapse of the political party system cut off (p.206) access to state institutions, in particular to Parliament and the Ministry of Labor (Mejía 1998: 35–37).

(10) . Another study in 2003 estimated permanent employment at 20.5 percent (down from 40.3 percent in 1990), temporary employment at 33.5 percent (up from 25.2 percent in 1990), and 46 percent of workers without employment contracts (up from 34.5 percent in 1990). The unionization rate was estimated at 8.3 percent (down from 39 percent in 1990) (Chacaltana 2005: 29).

(11) . Membership in the state-run National System of Pensions (Sistema Nacional de Pensiones) was 18 percent of the population, according to an Apoyo poll in June of 2003. Some 66 percent of the population reported that they were not covered by any pension program. The figure on confidence in the system comes from an earlier poll taken in 1999.While opinion may have shifted slightly over the intervening four years between polls, anecdotal evidence suggests that dissatisfaction with the private pension system remained high.