5 septiembre 2018

Wage Negotiations Heat Up in Times of Crisis

The currency devaluation has led to a significant loss of income, whose impact on prices is still unpredictable in a context of volatility and uncertainty, together with the systematic fall in confidence.

The dilemma is how to resolve the present process of acute stagflation, i.e. high rate of inflation and falling business activity coupled with a really large fiscal deficit and scarce risky investment.

The process of wage revision is at a crossroads again, with a high inflation rate triggered by the latest bank rush amid a series of events that may be divided into four stages so far.

As a matter of fact, at the first stage, there is the inflation target at 15% in December 2017, when many unions supported the Executive by making agreements based on such target, in a context of non-aggression with the large part of the Justicialist Party, but this goal was quickly unattained due to greater inflation and annual forecasts.

At the second, almost immediate stage, inflation increased and led to agreements for 20% pay rises, not only questioning the original target but also approaching what the real inflation rate could be based on the data for the first four-month period of this year.

At the third stage, in 2018, after an increase in INDEC CPI the Department of Labor issued a resolution whereby the signatory parties to agreements for 15% rise could make a “fast track” agreement to reach a 20% raise.

Then, at the fourth stage, agreements were made for more than 20% rise, beginning with FATSA (Health Workers’ Union) who reached a 25% raise in an agreement with medical centers and healthcare facilities, Teamsters with a 27% raise, and the Banking Association above 32% pay rise.

All the agreements contain a revision clause, which -as you will surely remember- superseded the escalator clause suggested by the Executive in 2017 and that everybody accepted. The revision clause somehow ensures that all sectors will have a final raise based on INDEC CPI and what the parties may agree on. The results will surely lead to raises by the end of 2018.

In such a scenario, there is a whole array of alternatives ahead to deal with the present situation and mitigate the adverse effects of the crisis.

One of the most likely alternatives is the so-called “fast track” agreement for a raise rate authorized by the Department of Labor. The dilemma is which will be the raise rate. One possible rate is 5%, in the hope that the process continues to advance in these four dramatic months until the end of the year, where the effects of the crisis will be felt. In small doses, the impact will be gradual and the effects will not be shocking in the real economy.

A second, less prudent option is to admit wage renegotiation by implementing the revision clauses in the next few days so that each sector may agree on a raise rate within their means and in the terms that the business activity may comply with. A variation of this option is to implement the revision clause when INDEC CPI surpasses the agreed terms under each collective bargaining agreement.

A third, less viable option is to keep the status quo, so each sector gets what they have agreed so far, including the additional 5% increase for the beneficiaries of the Executive Order, and then can grant other raises when INDEC CPI for 2018 is disclosed in mid-January 2019. This group will be adversely hit in the fourth quarter because they will not have any mitigating payment to combat inflation and deal with the new prices with their salaries lagging behind.

The focal point of this present situation is not wages, unlike other time periods in our recent history. In any case, the loss in income is an objective fact that requires solutions that are now only temporary palliatives. There is no room, though, to ignore wages at the private sector.

By Julian A. de Diego
Director of the postgraduate course on Human Resources at the School of Business at UCA.

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