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The end of the employment contract (II) – the cost of having job security

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In the last post was questioned whether the current contracting system was the only possible or whether there are alternatives that do not create situations of vulnerability and social divide, as in most deregulated economies of the U.S. rate.

Beyond the debate over whether the labor market should be regulated or not, it is necessary to understand what the existence of the contract as we know it today does mean. Firstly it is important to note that this instrument is largely responsible for the competitiveness of Western economies and the welfare enjoyed by its citizens.

It is a democratic conquest of the highest order, because it is linked to the entire social security system, which allows for universal health coverage and insurance against unemployment, in addition to a pension system. The critics of public social protection emphasize the costs, but obviously the amount of wealth they create, for example, keeping the elderly in the economic cycle, rather than condemn them to poverty or become costly for families.

Furthermore, although many companies would like their entire workforce to be temporary, in fact, if they agree the system, it is because it offers many advantages. Firstly they can externalize the cost of the disease and absenteeism of their employees to the State. Secondly, the State finances 70% of the motivation and work environment, which consists mainly in job security. Thirdly, they have an important legal instrument to control their labor force and to maintain control of their processes. Let us not forget that it was Henry Ford who invented this type of employment relationship: the expertise lies in the hands of the company, not the workers, who in the nineteenth century could sell it to the highest bidder.





Workers Legal security
Economic (relative) (Relative) security against fluctuations in demand
Participation in the social security system
Predictability and planning capability
Relative safety before unemployment (compensation)
Little influence on the organization of work
A single source of income, extreme dependency on the employer
Higher income means hierarchy and power struggle
Low margins of freedom 
Companies Health insurance, absenteeism, parent leave, etc. at State cost
Control on processes and quality
Part of the working climate(security) at State cost
Knowledge in the hands of the company.
Acceptable degree of loyalty on the part of staffing
Ability to impose conditions of production
industrial relations Stable staffLegal stability
Difficulty to hire and fire according to demand
High compensation costs
The best employees spend between 20% and 30% in “doing politics” (for promotion, maintenance)
Senior workers have power to create employee resistance “bunkers”
Country / society Social peace
Stable employment
Powerful credit industry (banking)
Funding for a universal system of social security: Unemployment and health coverage for all citizens
Public health sector generates wealth, employment and R & D
Pension system which keeps elderly within the economic cycle
Ballast to the competitiveness of enterprises
Need to create shadow areas: temporal contracts
Risk of social fracture between “stable” and “precarious”
Adoption of the precarious system even by government in strategic sectors: university and science

Another advantage for companies is that job security allows employees to plan their future and thus access to credit. Without safety there would be no strong banking sector and real estate. Therefore, even in countries with flexible labor laws, such as the U.S. companies tend to offer some sort of medium-term perspective to their workers.

But without doubt, critics of the system are right in many respects. One, clearly, is the huge cost for companies and State in order to keep the system running. And while not openly outspoken, through the facts, the government admits that the system is costly. This recognition happens through the legislation that allows temporary contracts in its many variants. Most of Spain’s more than four million unemployed are former temporary workers.
In this sense we have to acknowledge that historically, unions have negotiated a very good agreement for workers in terms of security and predictability. But as shown in the table, the classical employment contract has almost as many disadvantages as advantages. And this is not only the economic cost and loss of competitiveness of this very expensive System. Security, that precious intangible, has a price and it is high in terms of personal freedom and dependence.
We are so used to working with hierarchy and bosses, that we are not aware of the huge opportunity cost that we pay for security. Firstly we pay an economic price:  we rely on a single payer with a far better position to impose his prices than. Our only real asset in this trade is the possible scarcity of our knowledge or skills in the market. In addition, employers, they buy nominal eight hours of work time; and often ten or twelve in real time: it is impossible to even offer our services as a freelancers to other parties if we want to have time for family and personal life.

The second type of cost is time. Time spent in traffic jams, time spent on rigid timetables that prevent work life balance or the care of children and elderly. Think of the time invested by those who want to climb up the ladder and earn more; the time invested competing against colleagues or wasted in trying to control the infinite variables to avoid the failure that will through us from the rat race. Imagined all the productive things you could do in this time.
The third cost is more intangible. If security is a valuable intangible, freedom is not less. Labor relations are only nominally free: there are many types of direct and indirect coercion. Anyone who believes that talk about freedom means to speak of a beautiful, but impractical, idea can review the list of physical and social diseases associated with dependent employment and calculate their costs in money, health and welfare. The lack of freedom to choose or influence the workplace can have health effects, especially if the employer fails to meet the health and safety standards. The lack of freedom to organize our time, as we have seen, keeps us from work life balance and condemns us to “payment by presence”. How many women spend almost their entire salary to pay a girl that takes care of the children while they go to work?

In the next post will propose alternatives to current labor contracts, aware that they will not answer all issues raised and certainly they will not be applicable in all fields of work or in all professions.


Autor: Carlos Bezos Daleske

Siento curiosidad por todo lo relacionado con personas y organizaciones, especialmente en salud. Me gusta trabajar con personas y con su capacidad de innovación y co-creación. I feel very curious about everything related to people and organizations, especially in healthcare. I enjoy working with people and their ability to innovate and co-create.

Un pensamiento en “The end of the employment contract (II) – the cost of having job security

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