Job destruction can be avoided - IDESA


Report Nº: 77818/10/2018

Job destruction can be avoided

Exchange rate volatility, very high interest rates and accelerating inflation are causing severe stress on SMEs. Although the latest official data on registered private salaried employment (June 2018) do not show significant losses, it is foreseeable that if the recession continues the destruction of jobs will accelerate.

The fiscal and monetary conditions (where between the fiscal deficit and the very short-term bonds of the Central Bank practically equal the total amount of money held by the public), leave little room for maneuver to relax the financial suffocation of companies. Hence, there is an urgent need to think of innovative tools to mitigate the social impacts of the crisis and prepare the conditions for a rapid recovery.

The strategies applied by Germany during the 2008 crisis are very instructive. To see its results, it is useful to take a look to data from the OECD’s “Employment Outlook 2018“. According to this source, between 2007 and 2017 it is observed that:

  • In Italy the employment rate was stagnant at 58% of the working-age population.
  • In France the employment rate rose barely from just 64% to 65% of the working-age population.
  • In Germany, on the other hand, the employment rate rose from 69% to 75% of the working-age population.

These data show the very much better performance of the German labor market from the crisis of 2008 to the present. This good generation of jobs explains why unemployment in Germany is below 4% while in Italy the unemployment rate is 11% and in France 9% of the active population. These are very revealing evidences because they arise from a comparison between the three largest countries of the European Union that also have comparable economic structures.

What helped Germany to protect first and then to multiply jobs? Surely several factors operate, but a study published in the Journal of Economic Perspectives entitled “From Sick Man of Europe to Economic Superstar: Germany’s Resurgent Economy” identifies the most important ones. It points out that Germany’s hallmark is its model of collective bargaining. Although all three countries have sectorial collective agreements, in Germany exists the so-called “opening clause“. This regulation enables the employer to deviate from the sectorial collective agreement and negotiate an agreement at company level, provided that there is an agreement between the employer and all its workers. This is a method widely used by sole owners, family businesses and small companies to adapt the organization of work and the remunerations to their possibilities. The most interesting thing is that an instrument designed to deal with the crisis proved to be equally effective in promoting employment after the crises were over.

In Argentina, a sectorial collective bargaining model also prevails, as in these European countries. Only large companies have the possibility of applying for a company level agreement. If a rule similar to Germany were adopted, SMEs could be given the same possibility in Argentina. Through agreements between the employer and all its workers, with the approval of the local labor authority, smaller companies could negotiate specific internal rules to preserve jobs in the crisis and facilitate their creation in the recovery phase.

Congress has demonstrated to be incapable of advancing in modernizing labor regulations. Faced with the urgencies imposed by the crisis, it is urgent to seek simpler and more innovative solutions. One of them is to allow employers and workers to agree on rules within their companies to protect their jobs and promote the creation of new ones once the crisis subsides.

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