12 diciembre 2018

Revision Clauses and the Inflationary Effect

Revision clauses were designed by the Department of Labor and the Executive to replace the escalator clauses that adjusted wages under collective bargaining agreements automatically according to inflation rate in 2017.

Published in El Cronista on December 12, 2018
As a replacement, revision clauses were created because they are not automatically enforced and depend on the latest negotiations in the period once INDEC CPI is revealed in the second fortnight of January 2019. In practice, this was a semantic difference but both have the same effect.

The truth is that these clauses have been enforced in advance, like in the case of the collective bargaining agreement entered into by and between the Chamber of Commerce [Cámara de Comercio] and the Federation of Workers in Commerce and Services [Federación de Trabajadores de Comercio y Servicios] whereby the parties agreed on a raise payable in three installments of 7%, 7% and 6% in January, February and March 2019 respectively, reaching a total of 45%, with a clarifying note about the non-salary nature of the benefit without specifying whether it is included or not.

Raises at the oils industry have really shot up, reaching 75% with a minimum wage under collective bargaining agreement of ARS 43,821, which in March 2018 amounted to ARS 25,000, and a year-end bonus of more than ARS 33,000. In July 2019 the parties at this sector will meet again to grant another pay rise so there is an anticipated raise for next year of around 25% for each half, with a forecast of 50% for the whole year to come.

There are other sectors with their own mechanism for pay rises, like SMATA [Union of Car Industry Workers], where company-wide collective bargaining agreements contain a clause for quarterly wage adjustment according to inflation rate. Other unions have agreed on anticipated raises, such as the banking employees’ union, and in fact each industrial sector is trying to keep up with inflation, sometimes in advance or simultaneously.

On the other hand, more than half of collective bargaining agreements did not grant raises according to inflation rate, just pay rises between 25% and 35%, without any revision clauses, and they have low expectations to keep pace with inflation.

Considering the average raises agreed, wages would be 7% – 15% below INDEC CPI, not knowing the November and December indexes yet to be able to estimate the year-end.

In any case, our remark about the evolution of collective bargaining agreements once they are executed and the final raises are agreed will show significant variations in payment terms, installments and how they keep up with inflation, but they are all aimed at achieving the goal of being in line with inflation even if late. As traditional leaders usually say: let’s agree on the highest possible raises and then let those who can afford it pay them.

This goal, even when attained –late- is essential to avoid lagging wages in collective bargaining agreements for 2019, which will be much more elastic and permissive considering that it will be an electoral year.

Far from all the goals set, collective bargaining agreements could not ignore inflation and were subject to the overwhelming race between prices and wages. Consequently, all the concerns and fantasies around productivity with zero inflation or deflation vanished into thin air together with other similar thoughts. Actually all the targets became fallacies, like zero poverty, when today the poverty rate is over 40%, or the big wave of investments that today is receding, or the shortage of loans with interest rates of 80% in the real world of SMEs.

Let alone full employment, with unemployment and underemployment rates completely out of control, and an unprecedented fall in the activity levels that cannot find their floor yet.

There is the feeling that the best is yet to come, and government authorities are expecting that this process will take place spontaneously without dealing with the substantive structural reforms required for the original project that Macri voters are expecting. Again, magical thinking is getting hold of our government officers, weaving an aspirational fantasy without any causal relation between what is done and what is not done, and the confirmed truth in the real world.

The expected thing is to have one last chance to regain trust, for which it is crucial to show firm conviction, and especially strength in practice.

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


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