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A Law to begin to unravel the Argentine labor crisis

A Law to begin to unravel the Argentine labor crisis
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Argentina is going through, without a doubt, a crisis in the labor market. Between 2012 and 2023, the total number of registered private employees increased by just 4.9%. In comparison, the Economically Active Population, which includes all Argentines who are employed or looking for employment, grew by 21.1%, at a rate of 2% annually.

According to data from the SIPA (Argentine Integrated Pension System), the total number of registered private employees has persistently oscillated between a maximum of 6,400,000 and a minimum of 5,800,000, equivalent to fluctuations of +/-5% with respect to the average 2011-2023. In that period, only in 7 years was there a positive balance of registered private job creation. As a result, the number of privately registered salaried workers per 100,000 inhabitants fell from 14,536 in 2012 to about 13,641 at the end of 2023.

The foreseeable consequence has been that, faced with the stagnation of private salaried work, the new workers who have entered the labor market have done so in the public sector, as self-employed or in the informal market. Between 2012 and 2023, the number of independent workers (monotributistas and self-employed) increased by 35.9% and the number of employees in the public sector increased by 31.5%. For its part, the unregistered employment rate has persistently been between 35% and 45%, affecting more than 5 million people.

The first cause behind this crisis is the macroeconomic instability that the country has had, the result of a populist model that, paradoxically, claimed to defend the worker. But, on the other hand, by discouraging savings and productive investment, they harmed the creation of quality employment. Since 2011, Argentina has been in stagflation; In 7 of the last 13 years the GDP fell, and inflation increased from 23% annually in 2011 to 211% in 2023. The second explanation is found in the specific regulations that govern the labor market. Under the justification of taking care of workers, hiring has been discouraged and, consequently, those who intend to enter the formal labor market have been excluded.

The Argentine Congress is faced with an opportunity to begin to unravel the Argentine labor crisis. The Draft “Law of bases and starting points for the Freedom of Argentines” attacks the two main problems that make the registered private labor market rigid: the high entry and exit costs.

The Bases Law is a realistic opportunity to improve the situation. Instead of betting on good intentions, it is going directly to modify the incentives for blank hiring. From the point of view of entry costs, the Base Law incorporates several mechanisms that reduce them, facilitating and incentivizing new hiring by companies. The most important is the extension of the employee trial period from 3 to 6 months (which may be extended up to 1 year depending on the size of the company). On the side of exit costs, it provides for the modification of fines for unregistered or poorly registered work, and the authorization for employers and unions to agree to modify the compensation regime for a Labor Termination Fund.

That said, there are several pending modifications that we believe will need to be addressed in other bills if contracting is to be further energized. These include privileging negotiations at the company level over sectoral ones, the elimination of ultra-activity of agreements, and the reduction of taxes that allow reducing non-wage labor costs.

Argentina has enormous potential to attract productive investments in the short term, but if the regulatory framework does not improve, this will not turn into a genuine recovery of registered private employment. The current labor rules are discriminatory and regressive, because with the justification of giving rights to those who are already in the labor market, they leave out those who want to enter it. In the last elections, a majority of society voted for a change of direction and the Base Law is a concrete instrument to begin to implement it.

UCEMA Economist and Chief Economist of the Libertad y Progreso Foundation.

Source: Ambito

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