Under the Prospect Theory, when people need to take decisions in situations where they should choose from high-risk alternatives, their risk aversion is greater than their anxiety to get gains (Daniel Kahneman, Nobel Memorial Prize in Economics in 2002).
Published in El Cronista on February 4, 2020
The Expected Utility Hypothesis says that under certain axioms of rational behavior, the individual will always prefer actions that maximize expected utility (the von Neumann-Morgenstern utility theorem). These are precisely the parameters used by unions in the context of crisis and uncertainty as a result of stagflation (recession + inflation). Their aim is to get as much as they can, as efficiently as possible, without any restrictions.
As a matter of fact, unions prefer avoiding more losses to acquiring equivalent gains. They’d much rather struggle to survive than venture to win and lose their political or economic power, or representation. This is a logical phenomenon in an economy where the only reason to get a pay rise is the loss of the actual value of the currency due to the destructive effects of inflation. The lack of an economic plan, which is sought-after by bondholders and creditors, shows that for the time being the only priority is to refinance maturing debt.
The close relationship between the Executive and CGT [Workers’ General Confederation] and traditional union leaders is somehow impacting decisions at every level, not only in labor and employment matters, including wages and wealth redistribution.
It is worth mentioning that at the meeting held last week at the Health Workers’ Union [Sindicato de Sanidad] led by Carlos West Ocampo and Héctor Daer, union leaders discussed the restrictions proposed by the Executive aimed at eliminating escalator and revision clauses from collective agreements, and even the possible temporary suspension of free collective bargaining as we know it.
President Alberto Fernández has proposed to grant pay rises in fixed amounts instead of rates, not adjusted for inflation or updated in wage negotiations under industry-wide collective agreements, and without any kind of clauses that may establish any final increase in each period, which was the case under Macri administration, as promoted the Ministry of Labor headed by Triaca and then by the diminished Secretary of Labor at the Ministry of Production headed by Dante Sica.
At that meeting, union leaders said to those who are willing to listen that there is free collective bargaining over wages, meaning that each sector is free to agree on their most convenient pay rise without any constraints placed by the Executive, like when it imposed payment of a fixed amount of ARS 3,000 in January and ARS 4,000 in February under Executive Order 14/2020, which will be taken as a supporting, secondary mechanism to increase the purchasing power of the grassroots with the aim of promoting pay rises for those in need. In fact, Sergio Palazzo (Banking) presented the successful wage agreement reached at the banking sector as a way to increase wages over inflation.
Union leaders emphasized that the inclusion of an escalator clause should be assessed on a case-by-case basis, and some of them claimed that it should be included in collective agreements without reserves. Sergio Sacia (Railroads), Maturano (Railroads), Cavalieri (Commerce), Carlos Sueiro (Customs), Rodolfo Daer (Food), Oscar Mangone (Gas), Amadeo Genta (Civil Service in the City of Buenos Aires) reasserted the importance of collective bargaining as one of the pillars of the organized union movement and the best scenario to preserve their leading roles.
Without wage negotiation, union leaders would not have any say in the course of the economy of the future.
In short, they reaffirmed the validity of free wage negotiation as against price controls, the freeze on utility rates and tolls, and restrictions on subsidies. Unions claim that companies are skyrocketing prices again, and with that inflation rate soars. For the economy to grow again, it is crucial to have companies developed in predictable and sustainable ways.
It remains to be seen how the Ministry of Labor will react; negotiations are being conducted normally thanks to the strong commitment of Minister Claudio Moroni and Deputy Minister Marcelo Belotti and their supporting technical teams.
Handling the present crisis and emergency means helping those in need and rescuing and preserving employers’ continuity, building a bridge between the current situation characterized by stagflation and a short- and medium-term model based on investment, saving and economic growth. Traceability means taking compatible actions and supporting goals with consistence. As a matter of fact, it is a serious inconsistency to have free collective bargaining without an economic plan to boost the development of new businesses and investment in a context of stability and growth.
There is no point in thinking of promotion mechanisms if there is no plan to activate the respective sector. For example, to boost tourism it is essential to promote domestic and inbound tourism by taking actions that may favor tourists coming from abroad such as tax free shopping, new airline routes and tourism marketing campaigns at embassies and consulates to promote travel destinations and attractions in Argentina. Exporting sectors need the support from the State through assistance programs, funding, operation management and simplified processes for SMEs that sell products abroad such as regional products of the region or meat-packing businesses, charcuteries and unicorns.
Free collective bargaining should primarily lead to company-wide agreements, instead of industry-wide agreements, to include the use of new technologies and in particular the sharing economy.
Work cut off from capital causes inconsistencies that result in inefficiency and lost competitiveness. The path to new markets is not found out of habit or thanks to the force of gravity. It is crucial to design subjective incentive programs and the best quality-price ratio. None of these goals could be attained through free collective bargaining without companies’ economic development.
By Julian A. de Diego
Director of the postgraduate course on Human Resources at the School of Business at UCA.