27 diciembre 2018

Labor & Employment Forecast with Cautious Optimism and New Conflicts

The year 2018 is coming to an end with all labor indicators in the red. Employment is frozen, the unemployment rate has increased, the clandestine economy is around 40%, government allowances for the jobless have reached record high amounts, the activity level of many industries is dropping, and workers and retirees have lost purchasing power.

Published in El Cronista on December 27, 2018
The world of labor depends on the evolution of the economy, and therefore the results could not have been different. However, there are so many nuances that it would be advisable to make selective forecasts because data generalization may lead to significant mistakes.

Macro-level analyses show that the fiscal deficit comes in ahead of forecasts, the inflation rate is around 50%, tax pressure and tax burden are the highest on earth, the fall in GDP is palpable, public spending is out of control, high interests rates and shortage of loans turn SMEs unviable and are confiscatory for investors in general, and there is no evidence of any short- or medium-term investment, and no conditions or incentives to reverse the trend. Special reference should be made to past and future utility rate hikes that still cause a clear disruption for more than 50% of the population living below the market basket measure, and still hit small enterprises.

The year 2019 looks complex and heterogeneous, so much so that we’d better describe the situation sector by sector. Undoubtedly, the outright winners have been TOYOTA,, Mercado Libre, Vaca Muerta Project,  agriculture and livestock farming, and agricultural supply companies, meat processing plants, exporting companies such as wine producers, pharmaceuticals, natural honey exporters, tech companies or unicorn startups, software development companies, tourism, hotel and hospitality services benefitting from the exchange rate shifts, and so forth.

Employment will depend on the economic activity level at each sector. Consequently, there will be new hires at companies or divisions that are growing, such as the oil and gas industry.

However, the crisis will still hit SMEs that do not have financial backing, cannot take out reasonable loans and are adversely affected by a significant fall in consumption.

The combination of these objective factors leads us to say that the year 2019 will be complex and cause even more considerable difficulties and great uncertainty.

Let’s analyze wages, collective bargaining agreements, employment, conflicts, and the needs under the present circumstances.

Wages will try to keep up with inflation, whose rate according to official forecasts is around 23%, far from the surveys by private consultancy firms indicating it will be over 30% and even 35%. Leading companies show it will average 27%. In any case, remember that wages under collective bargaining agreements contain revision clauses. What will be adversely affected are the salaries of middle and upper management positions, which may be 7% – 12% below pay rises under collective agreements, which sooner or later will match INDEC CPI.

Collective bargaining can serve as a means to modernize the industrial relations model, so any initiative in an attempt to negotiate with new contents is commendable. There is the limitation imposed by the prevalence of company-wide collective bargaining agreements over industry-wide collective agreements [disponibilidad colectiva legal], even though the so-called gaps in the law may be regulated.

Employment, considering new hires and layoffs, will remain at the levels of 2018, so the unemployment rate will increase and unfortunately, the clandestine economy will grow as a natural refuge for small companies.

Conflicts will arise at each company or sector, given the utterly useless point of the general strikes organized by CGT [Workers’ General Confederation], which not only failed to meet any strategic goal but also weakened the Unions, who should necessarily change their strategy to keep being part of the process to negotiate on labor and social needs.

The needs under the present circumstances are pretty clear: without growth or the basic conditions required by the economy to provide investors with rules and guarantees and reasonable profit, there will not be any investment, not even from the local market. The now deferred labor reform calls for a wide array of legal mechanisms, rules and regulations and collective bargaining agreement provisions that the Executive is not willing to face.

In this scenario, innovators will play a crucial role, challenging the rules and taking disrupting initiatives, together with creators, entrepreneurs, those who are cleverly skillful, resourceful and ingenious and are willing to overcome the difficulties and hurdles of the current panorama that presents the new year 2019 as typical of Argentina.

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

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