The US Model of Industrial Relations Reduces Unemployment

The US is the country with the lowest level of employees’ legal protection, and together with China are the most competitive nations in the globe. The unemployment rate in the US fell from 3.8% to 3.6% in April, the lowest rate in 49 years (from December 1969), and in just one month some 263,000 new job positions were created, almost reaching full employment, as reported by the Federal Government.

Published in El Cronista on August 6, 2019
In just one month the US has created what we have lost in a year. Argentina only reached a similar unemployment rate in 1980, then it has always been over 7% or 8%, and the highest rate was found in 1997, and in 2002 we had record highs around 20%.

On the one hand, the average hourly wage in the US rose by USD 6 cents to USD 27.77, totaling USD 5,000 per month, equal to ARS 225,000. In the last twelve months wages have increased by 3.2% at the same level than last month, with an annual inflation rate always below 2%. The upward trend in wages derives from supply and demand, and the systemic growth of the economic model. In Argentina wages fell by 10% in one year, and unemployment is still on the rise, above 10%.

Most parts of the US follow the rule of at-will employment under common law, which is typical of Anglo-Saxon law. This means that employment may be terminated by any of the parties at any time for no reason without the obligation to make severance payment. In Argentina employment termination has become highly conflicting, often triggering disputes with the Unions, and today related costs exceed the amount of one salary per year of services due to the penalties and charges for irregular salary payments off the books.

Terminating an employee in the US means that the employee has failed at some point in their position, could not adapt to new technologies, do not meet productivity standards or for other objective reasons, and therefore severance payment is not viable for those who fail or do not reach targets. In addition, unemployment insurance ensures income in proportion to average wages in the respective sector for different periods of time whereas the employment system offers new alternatives or training with immediate job opportunities much in demand. A jobless person has options immediately, and gets hired within a week on average.

In Argentina, it takes around 14 months to get a new job for those who have lost it, and often they find lower positions or less qualified categories than they used to hold, and unemployment insurance here is just symbolic.

The US legislation is scattered throughout various rules and regulations, as compared to Argentina, accounting for 8% of our laws. Curiously enough, the source of general inspiration was the principle of equality and non-discrimination. In 1941, Executive Order 8802 (Fair Employment Act) was the first law to prohibit racial discrimination in the nation’s defense industry. Then in 1990 the Americans with Disabilities Act was passed, and in 1993 the Family and Medical Leave Act was signed into law.

The Fair Employment Act regulates minimum wage and overtime for employees who work more than 40 hours per week, and a minimum of two hours per day. Any case of workplace discrimination in the US is within the sphere of the Equal Employment Opportunity Commission (EEOC). Any disputes based on labor and employment law are handled by state or federal courts depending on the issue and the size of employer (e.g. the Civil Rights Act of 1964 only applies to employers of more than 15 staff). Grievance processes are abridged, highly accelerated, and do not take more than six months, unless constitutional matters are at stake. Nothing compares to our “litigation industry”.

The Civil Rights Act of 1964 outlawed discrimination based on race, gender, national origin and religion in the public service, and later on workplace discrimination on the basis of pregnancy was prohibited in 1981. The Employee Retirement Income Security Act (ERISA) establishes standards for financing and granting pension plans and medical coverage by employers. The Family and Medical Leave Act, enacted in 1993, requires covered employers to provide employees with 12-week unpaid leave for qualified medical and family reasons. The Occupational Safety and Health Act (OSHA) signed into law in 1970 by President Richard Nixon, creates specific standards for workplace safety.

Nothing in our legislation even remotely resembles that of First World countries. We are still tied by anachronistic rules that do not keep up with new technologies, the demands for cost reduction and productivity targets. Whoever wins in the next elections, if they are willing to promote employment, should introduce a substantive and integral labor reform; otherwise, we will inevitably continue in this backward trend and decadence.

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