June 7, 2017

The passage of a new labor code provides an opportunity for substantial reform, but a recent study from the Lithuanian Free Market Institute (LFMI) compares Lithuania’s labor legislation with that of 10 other European Union member states, and shows that the new labor code only tinkers around the edges without making the kind of changes that could enhance Lithuania’s business environment and boost the country’s economic performance.

“According to 33 indicators provided by the World Bank (hiring, working hours, redundancy rules and costs), after enforcing the new Labour Code, the strictness of labour regulation will generally remain the same,” the study explains. “There will be no significant changes as regards the strictness of labour regulation as improvement towards flexibility is expected in merely 3 out of 33 indicators.”

The only three indicators that are expected to see improvement are an increase in the maximum allowed working days per week, a reduced mandatory notice period for workers dismissed for redundancy, and a reduction in required severance pay for redundancies. Although Lithuania has a relatively high ranking in the World Bank’s “Doing Business” index, placing 21st out of 190 measured countries, the failure to pass substantial reforms while they’re politically possible could lead to a stagnant or declining economic position in Lithuania’s future. LFMI has outlined its proposals to amend the existing labor code legislation.

LFMI has had success in laying the intellectual groundwork for other substantial reforms.

“On Nov. 8, 2016, the Lithuanian Parliament passed an amendment to the Law on Local Self-Government restricting the establishment and expansion of municipal enterprises by introducing a competitive assessment procedure,” said Aneta Vainė, director of development and programs for LFMI. “As of Jan. 1, 2017, in order to establish new companies or launch new functions in existing municipal companies, municipalities will be required to provide proof that similar services are not available on the market or may not be delivered by the private sector. This is a landmark policy decision that will also help significantly in advocating for the adoption of similar restrictions for state-run enterprises.”

In the months leading up to the passage of that policy, LFMI published a series of policy papers that have been instrumental in influencing the reform process, including risk assessment in the construction industryspeeding up the construction process, how to implement increased access to the electrical grid, and navigating the confusing labor tax system.

“We formulated a legislative proposal package and a position note for the introduction of a competitive assessment procedure for state-owned and municipal enterprises and engaged in an extensive advocacy campaign to promote the legislation,” Vainė said. “We provided a series of testimonies to key stakeholders, including the Competition Council and the following parliamentary committees: the Committee on Economics, the Committee on National Security and Defense, the Committee on Audit, the Committee on Budget and Finance and the Committee on State Administration and Local Authorities. So far we have reached out to 65 policy- and decision-makers.”

As part of this ongoing project, partly funded through Atlas Network’s Liberating Enterprise and Entrepreneurship grant program, LFMI is conducting a research report that analyzes the legalities of state- and municipally-owned enterprises and provides evidence and data on their commercial operations, making the case to restrain the establishment of new entities and the expansion of existing ones. The project will include additional case studies on state- and municipality-owned enterprises, as well as a policy brief that proposes introducing a competitive procedure for the establishment and expansion of state and municipal enterprises.