How Employment Rules and Tax Laws Affect Managers and Working Professionals

How Labor Laws and Employment Rules Impact Managers

The nature of the employment rules and the governmental policies that regulate the working of companies in each country affect managers and working professionals in many ways. For instance, if the government adopts a strict policy governing hire and fire of workers and prohibits firing of workers according to the seasonal and business cycle fluctuations, the result is that managers have less latitude in hiring at will and firing workers at will. Further, the labor laws in different countries dictate the working hours, the number of leaves that are allowed for the workers, and the list of holidays that are announced each year. All these rules and regulations have the effect of either liberalizing the working conditions or restricting the free flow of workers in the industry. For instance, in the developed west, that follows a neoliberal and capitalist model, the managers have greater flexibility in choosing whom to hire and when to fire depending on the economic conditions or the financial state of the company. On the other hand, in the developing countries in Asia and Africa, there are strict rules against firing employees and therefore, many managers are wary of building up overcapacity because the slack cannot be cut during unfavorable economic conditions. Of course, in the past decade or so, many countries like China, India, Indonesia, and countries in Africa have liberalized rules and policies related to employment with the result that these countries are now more amenable to pure capitalist type employment conditions.

The Impact of Tax Laws on Managers

Turning to the tax laws that impact managers and working professionals, the first and foremost effect that a strict tax regime would have on managers is that they cannot offset many of the profits as expenses under accounting principles and instead, have to pay taxes more than those in the pure capitalist countries. For instance, many firms in the West have offshore subsidiaries and headquarters in tax havens that lets them do transfer pricing and other forms of accounting tweaks, which effectively reduces their tax burden. This is something that many developing countries are experimenting with in a bid to attract more investment into their economies. However, this is easier said than done as was evident in the way the Indian government handled the Vodafone tax case, which ultimately resulted in the government amending the law to make the company pay which also has the knock on effect of scaring other investors from investing in the country.

Razor’s Edge: The Need to Balance Workers’ Rights with Foreign Investor Expectations

The point here is that managers and working professionals operate in a micro and a macro environment where the policies in the macro sphere impact their working terms in the micro sphere. This is the reason why many investors look for those countries that are stable macro economically and pursue policies that are favorable to foreign capital. Of course, this has also resulted in a competition between the developing countries to attract foreign capital that has been described as a “race to the bottom” wherein each country tries to outdo the other in liberalizing its economy. This has given rise to the phenomenon of “Sweatshops” where factories in countries like China and Bangladesh have abominable working conditions, which leads to social unrest and howls of protest by international activists. This means that there is a fine line between overprotecting the economy and the workers from exploitation and the need to attract more foreign capital into the country. This is the fine line that many countries grapple with as they try to master working adroitly on the line without compromising on either side and ensure that both sides gain from the process.


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Managerial Economics