Labor-Management Negotiations Between Inflation Target and Electoral Struggle

Labor-Management negotiations reflect the reality of every moment, and those of 2019 are reflecting the status quo: stagflation, exchange rate to the dollar on a downward trend, relative currency stability, inflation in decline, and markets’ kindness to the presidential ticket Macri-Pichetto.

Published in the magazine Consejo Digital on July 08, 2019
The first round of wage negotiations per industrial sector has come to an end with different methods to keep up with inflation in a context of stagflation while awaiting the second round supported by a new pay rise through indexation or a final revision clause.

In any case, everybody is saying that the unique scenario that unfolded in the first half of the year has two possible alternatives, though antagonistic, at the end of the second half which are now confirmed by an extreme polarization that will be seen at each stage of the electoral calendar.

In the first half, pay rises were agreed directly or indirectly based on inflation, and in some cases, with payment of any differences from last year.

The eventual effects on the economy as a result of the primary elections (PASO, for its acronym in Spanish), the first round, the second round and until the winner takes office have led to the inclusion of provisions that allows the parties to revise and take any appropriate action according to the course of the economy as a consequence of the expectations created by the electoral outcome.

As a matter of fact, at the first stage, for instance, the Union of Food Workers [Alimentación] (Morán, Daer, Morcillo), and the chambers at that industrial sector agreed on an 8% discrepancy from last year and a 30% additional pay increase with an adjustment clause. The Union of Commerce Employees [Empleados de comercio] (Cavalieri) agreed on a 30% pay rise and a revision clause in January 2020; the Union of Health Care Workers [Sanidad] (West Ocampo, Hector Daer) made an agreement with CAEME [Argentine Chamber of Medicinal Specialties], CILFA [Industrial Chamber of Argentine Pharmaceutical Laboratories] and business entities following the example of SMATA [Mechanic and Automotive Transport Union] (Pignanelli) to grant quarterly increases based on INDEC CPI, thus ensuring that salaries keep pace with inflation. Workers from the oils industry managed to get the highest raises in 2018 and 2019, and a revision next July.

However, FADEEAC [Federation of Trucking Companies] and the Teamsters’ Union (Hugo y Pablo Moyano) agreed on a 23% raise in two installments of 11.5% each with July and November wages, and a recess until January 2020 to ensure that wages keep pace with inflation after elections take place and the authorities are sworn into office for the term 2020-2024. It is made clear that they will not claim any additional fixed or variable amount during the agreed period of time.

There are also out-of-context sequels to these agreements that show different mechanisms to get other increases in additional payments, bonuses or differences from last year.

The second half of the year will change with the primaries on August 11 and most surely with the elections on October 27 (first round) and November 24 (second round) until authorities take office on December 10.

Let’s imagine what may happen if in the primaries the electorate indicates that the presidential ticket Fernández-Fernández has chances of success in the first round. There may be an immediate adverse reaction of the markets with unpredictable consequences.

It is clear that the markets’ reaction will vary depending on who wins in each election, and the actions and measures the economic operators may take will vary as well.

Undoubtedly, the success of the presidential ticket Macri-Pichetto will be reassuring, and inflation is very likely to continue in decline; so the revision will have more predictable effects as confirmed by current events.

Those provisions designed to keep up with inflation will continue to apply by comparing the raises granted to INDEC CPI with a traceable impact for the rest of the period. In this framework it will be reasonable to forecast a 26% inflation rate in the National Budget for 2020, even when many estimates refer to 28%-30% inflation rate.

The success of the presidential ticket Fernández-Fernández based on the announcements that have been made so far is likely to create uncertainty and especially discouragement with the prospect of going back to past formulas and methods. In this case, markets are very likely to take actions that may lead to a loss of the confidence gained in the last couple of months with all the respective consequences.

All labor-management negotiations are -to a certain extent- promoting adjustment, revision or indexation after the election results -in some cases, two revisions-, and therefore the agreed terms to close negotiations, the basis of calculation for next year, and in particular the inflation rate forecast for 2020 will undoubtedly depend on the outcome of the election and the expectations that each event in the calendar may arouse.

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