9 out of every 10 new jobs are informal

In the first quarter of 2019, the unemployment rate in the large urban agglomerates rose to 10.1% of the economically active population. This number means 1.3 million people who say they are actively looking for a job and can not find it. To these people, another 2.3 million must be added since they declare to have a job but demand to work more. Thus, there are 3.6 million people that suffer insufficiency of jobs. These people represent 28% of the labor force in the large urban agglomerates. If people in the labor inactivity that desire to work are also added, the picture of the employment worsens.

This state of the job market spurred some representatives of the opposition parties to present a legislative initiative prohibiting layoffs. If the dismissal takes place in any event, the employee should be permitted to opt for a judicial process for his reinstatement and the payment of the fallen wages or, alternatively, receive a double severance payment.

Imposing regulations of this type in Argentina has always been present in the public policy debate and takes more strength in the crisis. To assess its pertinence, it is worth observing how the Argentine labor market behaved in recent years. Between 2016 and 2019, the available labor force went up from 12.5 million to 13.3 million people, that is, some 770 thousand people entered the labor market. Of these, 170 thousand did not get employed, increasing the unemployment rate from 9.3% to 10.1%. Among the 600 thousand who got employed, it is observed that:

• 13% got a job as a registered salaried worker.
• 41% got a job as an unregistered salaried worker.
• 46% self-employed as a self-employed worker.

These data show that almost all of the jobs created in the last 3 years were as an informal salaried employee or in self-employment. Considering also that self-employed workers registered in the social security did not grow either, it means that practically all new self-employed workers are also informal. Therefore, 9 out of every 10 jobs generated in the last 3 years are informal. Worse, the little formal salaried employment generated was in the public sector.

Putting more legal obstacles to dismissals will help little to protect existing jobs but strengthens the incentives for not generating new formal salaried jobs. Big firms will continue firing if they consider it convenient, even with a double severance payment. But when they need workers, they will avoid hiring in the registered salaried format. Among the smaller companies, the already very high propensity to hire in the informality will be accentuated. Therefore, hardening the dismissal rules will not only fail to reach the objective sought to protect existing salaried jobs but will also induce employers to take fewer registered salaried workers. They will instead appeal more intensely to self-employment and unregistered salaried employment.

To spur the creation of more registered salaried job, it is essential to rethink the anachronistic labor legislation and the model of centralized collective agreements. These regulations were negotiated centrally in the 70s and 80s. Nowadays they collide with new technologies and disregard the realities of SMEs and regional economies. For example, although Bitren trucks are ready to start operating, which will produce a significant positive impact on economic productivity in the interior of the country thanks to the reduction of transport costs, its implementation is delayed because the centralized collective agreement of truckers does not contemplate the post of driver for this type of modern vehicles.

In countries with a long tradition of labor protection, such as Germany and Spain, and France will soon join, employers have the option to deviate from the centralized agreements to sign a new agreement with their workers at the firm level. When Argentina joins this trend, the bad labor news will be avoided and legislative initiatives promoting prohibition of dismissals will not be needed anymore.