18 noviembre 2022

The Fallacy of Lump Sums and a Reduction in Working Time. Published on Cronista.com 

As Albert Einstein said: “We can’t solve our problems with the same thinking we use when we create them”. “Insanity is doing the same thing over and over, and expecting different results.” Seneca completes the picture by warning that “If one does not know to which port one is sailing, no wind is favorable».

This is the case now in Argentina, where the current government is promoting a lump sum payment in an attempt to raise the income level. However, the effect is exactly the opposite because it automatically creates anomalous distortions in pricing. Alternatively, it proposes a reduction in working hours in an attempt to increase the level of employment. This has been proven to be inefficient in similar past experiences, where unemployment grew as a result of companies’ lost competitiveness.

Article by Julián A. de Diego published on Cronista.com on Novenber 18, 2022

A lump sum is no use when it comes to helping workers recover their purchasing power. It is not compatible with a sustainable system of productivity and efficiency; rather, it is just a gift that flattens the pyramid. It is paid, and then it is quickly spent. It is not sustainable or foreseeable over time.

Lump sums are correlated to civil service, welfare programs and pension benefits in that they promote a subsystem that increases fiscal deficits, does not improve the financial situation of the most vulnerable groups, and gives out insufficient subsidies that perpetuate more than ten million people in poverty.

Furthermore, the Executive has no authority to order pay rises or increases to be paid by employers in the private sector. This kind of mandate is unconstitutional because it affects fundamental rights enshrined in our Constitution, including the right to property, the right to freely engage in any lawful industry, in addition to other related fundamental rights.

In fact, Act No. 14250 on Collective Bargaining Agreements protects social actors – unions and business organizations – from the intervention of the Department of Labor with a tripartite scheme. By ILO convention, each industrial sector should be able to determine their own pay increases based on their particular financial situation, any economic and financial fluctuations on the market, and when they can grant them.

The announcement by the government in the Province of Buenos Aires promoting a reduction in working hours as a way to improve the level of employment is another fallacy.

In France, under Lionel Jospin (Prime Minister between 1997 and 2002) the workweek was reduced from 40 to 35 hours, i.e. seven (7) hours per day for a 5-day week. But the unemployment rate continued to rise, thus fostering moonlighting among the employed. In addition, the salary of those workers who worked 35 hours a week, instead of 40, was cut back.

This initiative is quite contradictory in the present context where the Department of Labor has been reporting a gradual drop in the unemployment rate, 6.7% in the second two-month period of 2022. Actually, this rate is calculated based on the economically active population in the labor market, and does not take into account welfare recipients or any vulnerable groups who are unemployed because they lack the necessary skills and employability, and are excluded from the system.

The problem in Argentina, and in Latin America in general, lies in a huge inequality gap and the severe crisis created by the pandemic in terms of employment, job opportunities and education. Many jobs have been lost, in particular as a result of the technological advances in AI and robotics. Consequently, poverty and indigence have soared amid still rising high inequality and exclusion.

These large numbers of excluded groups are the result of public policies that hide poverty with subsidies, rather than giving them the tools to get registered jobs and building bridges for them to leave an endemic unemployment system, which is actually encouraged by welfare. As a Chinese proverb says «Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime». Undoubtedly, solutions require a favorable market for Argentina, based on sustainable growth and a medium-term economic plan that for now is still missing. This project should be associated with an educational revolution combining the traditional model with digital literacy. Quality employment can only be achieved through investment, particularly in labor-intensive activities, such as tourism and personal services, in a context of transparency and predictability. Subsidies, welfare programs, occasional financial aid are not enough and actually rather contradictory with a plan for creating registered and well-paid jobs.

A %d blogueros les gusta esto: