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Panama: hard labor

Thursday, June 7, 2012

WHAT The cost of doing business in Panama has been rising sharply, largely because of the increased cost of labor. An investment boom, mainly in real estate in Panama City, along with a $5 billion-plus plan to expand the Panama Canal, the construction of Central America’s first metro, has meant a significant increase in wage rates and also of work stoppages, in a country, the size of whose labor force has not kept pace with economic growth.

WHY Panamanian labor rules have long favored employees in several areas, including as many as 70 non-working days per year (19 holidays, up to 18 sick days without justification, and 30 vacation days, plus several "bridge" days, which fall between a holiday and a weekend). In addition, Panama has the region's most restrictive rules when it comes to immigration, including permits for temporary workers. The result has been a major increase in demand for labor, without an increase in supply.

WHAT NEXT On one hand, the current situation may be a way of solving a long-standing problem of inequality, in a country with a large rich-poor gap, including close to 40 percent of families living on less than $400 monthly. On the other hand, Panama's labor-force rigidities may be so great, that they will choke off growth, in which case no one would benefit. President Ricardo Martinelli is backing an initiative, which would make it easier for companies to hire guest workers from other countries in the region, including Nicaragua, Honduras and Colombia. But Martinelli is so unpopular, in the wake of several allegations of financial misdealing, that it is hard to imagine that the proposal will prosper.

For more information, please contact Esteban Alvarez, at [email protected]