More unemployment and instability ahead

Between five million and 25 million jobs. This is what the coronavirus pandemic may cost the world economy, the International Labor Organization (ILO) warned in a study published on March 18. In the Arab World, 1.7 million jobs may be lost, the UN Economic and Social Commission for Western Asia (ESCWA) reported, predicting a 1.2% point increase in unemployment rate in each country of the region.

According to the latest official estimates, Lebanon's unemployment rate was 11.4%, and would increase to 12.6%. However, this doesn’t take into account the impact of the economic crisis that the country was already facing before Covid-19. The figure was drawn from a March 2019 study by the Central Administration of Statistics (CAS), before the drying up of dollar liquidity, causing a sharp GDP contraction by around 10% in the last quarter of 2019, according to the International Finance Institute (IFI).

Between October and January, nearly 220,000 private sector jobs were reportedly cut, according to InfoPro estimates, based on a survey “conducted on a representative sample of 300 companies, weighted according to region, size and sector.” If proven, this would be an unprecedented wave of layoffs for a labor force of only 1.8 million people. In the same survey, more than half of the companies said they had reduced their employees’ salaries.

How have their conditions developed since the “general mobilization” was announced on March 15 to combat the spread of Covid-19? "We have not been so far notified of any layoffs related to the epidemic,” Labor Minister Lamia Yammine Douaihy said. But even if it’s still too early to assess the economic cost of the health crisis, it is hard to believe that the decline in business activity, even temporary, won’t affect the already highly depressed labor market.

Of course, employees in some sectors have continued to work from home, but “for all jobs that have to be performed at the worksite, teleworking is difficult, if not impossible,” said Nabil Fahed, vice-president of the Beirut Chamber of Commerce and Industry.

Confinement measures have particularly affected the services sector, which employs 76% of Lebanon’s labor force. But this sector was already suffering from a sharp decline in demand, due to banking restrictions and the pound’s devaluation on the parallel market. Sectors such as distribution, catering or personal services were in distress. In catering alone, the closure of nearly 800 establishments between September and February left 35,000 people destitute.

This is not to mention the banks, which are among the country’s main employers and facing an unprecedented crisis regardless of Covid-19. If job losses in this sector have so far been relatively limited, “we should expect a sharp increase in job cuts in 2020,” said George al-Hajj, president of the Federation of Syndicates of Bank Employees.

Limited Assistance

To curb the cumulative effects of the health and financial crises on employment, there is an urgent need to “rapidly scale up existing social protection mechanisms and put in place new schemes to protect workers’ increasingly vulnerable livelihoods, while also deploying measures to support businesses to ensure that workers still have jobs to return to at the end of the lockdown,” said Tariq Haq, ILO employment expert.

In the absence of government measures, the Bank of Lebanon (BOL) announced on March 23 that it will provide foreign currency liquidity to the banks to enable them to grant exceptional loans to their clients. The zero-rate loans, in dollars or pounds, will be exclusively spent on payment of credit maturities, salaries or business operating expenses for the months of March, April and May, and can be repaid over a period of up to five years.

However, this plan, whose volume hasn’t been specified, appears to be limited compared to the enormous needs. The Association of Lebanese Industrialists hence welcomed the “temporary breath of fresh air,” which was made possible by the health crisis, but doesn’t respond to the financial crisis that has been undermining the sector for several months.

A skeptical business leader wonders about the procedural requirements of the new measure. “Can everyone benefit from it? Will banks agree to lend to businesses facing bankruptcy?” he asked.

Until a mechanism is put in place, and eventually generalized, many companies may decide not to pay full wages in March, with the blessing of the government.

The Labor Ministry considers “general mobilization” as “force majeure” that may justify a temporary suspension of employment contracts, and therefore of salaries.

“When the force majeure period ends, employment contracts must resume,” said Joanna Kyrillos, a lawyer. According to the Lebanese Labor Code, she added, “an employer is not allowed to reduce the salaries or terminate employment contracts solely because of a decrease in activity.”

But, in fact, “well before the spread of the Covid-19 virus, many Lebanese companies had already adopted crisis measures, such as reducing wages and working times, or even layoffs without valid motives,” she said. “The Labor Ministry has tried to mediate between the employees and the companies, encouraging employees to accept reduced salaries as a better option than dismissal; an illegal measure under the Labor Code."

Hundreds of Complaints

The Labor Ministry confirmed that it received between October 17 and the end of February 909 individual complaints regarding unfair dismissal and 133 collective complaints on behalf of 205 employees. The total number of individuals affected was hence 1,142. “These complaints are most often filed to challenge dismissal terms, the compensation paid or the notice period,” Lamia Yammine Douaihy said. “But many agreements are concluded directly between employers and their employees without us being involved.”

Indeed, the obligation to notify the ministry in the event of dismissal for economic reasons isn’t always met. Faced with delays by the Labor Arbitration Board, most employees negotiate themselves their layoff terms with their employers, despite an often unfavorable balance of power between the two parties.

Only trade unions, in some industries, were able to redress the balance. “Some 30 employees laid-off by BLC Bank asked us to involve the Labor Ministry, which had not been consulted,” said George al-Hajj. “We finally managed to get from the then-minister of labour, Camille Abousleiman, a six- to 30-month compensation protocol depending on employment duration, while the legal minimum varies between two and 12 months,” he said. A few weeks later, some 40 Creditbank employees were able to benefit from the same protocol.

Conversely, informal workers, who accounted for 55% of the labor force in March 2019, are particularly vulnerable to the crisis. “This labor force is not subject to the Labor Code, doesn’t receive social benefits and is not protected by trade unions,” said Léa Bou Khater, researcher at Consultation and Research Institute and lecturer at the American University of Beirut (AUB) and the Lebanese-American University (LAU).

Informal work and underemployment

Due to a deterioration in economic activity and absence of appropriate response by the state, an increase in the number of the unemployed is inevitable, especially that the public sector is also in crisis. Until now, “Lebanese who could not find jobs were able to put pressure on the politicians to be employed in the public or para-public sector,” said Charbel Nahas, a former labor minister.“This was so to the point where unemployment and labor absorption has almost become the responsibility of the state.”

But today, even public-sector workers, who account for 14% of the labor force, are under the spotlight. “In the event of an austerity plan, public employment may also be threatened, even if, for now, the political class has an interest in supporting it,” Léa Bou Khater said.

The economic crisis coupled with a health crisis should also exacerbate structural problems such as informal work and underemployment, especially among young people. More women may get out of the labor market. “A decline in labour force participation rates is problematic, since part of the population becomes non-productive, and therefore dependent,” Léa Bou Khater added.