Report Nº: 110329/12/2024
It is expected that next year the economy will grow and with it formal employment and real wages. Evidence shows that, for this to happen, better labor regulations are needed. A central aspect is to give companies the freedom to negotiate with their workers outside collective bargaining agreements.
INDEC labor indicators for the 3rd quarter of 2024 give clear signs of the bleak situation of employment. Compared to the same quarter of the previous year, the number of inactive workers, unemployed, underemployed and fully employed job seekers increased. Among the employed, those who increased are the self-employed. This is not surprising considering that the economy is going through a contraction as a result of the adjustments to lower inflation.
The government is confident that next year the economy will recover and that this will drive the expansion of registered salaried employment in private companies. Some economists project this improvement based on the assumption that employment-product elasticity is about 0.7. In other words, for every 1% of economic growth, registered salaried employment in private companies rises by 0.7%. If production recovers quickly, formal employment would increase as well.
The approach assumes that there is an automatic relationship between economic growth and formal jobs creation. By observing the movements of the labor market in the last year, it is possible to determine how close this relationship has been. According to the Ministry of Labor in the third quarter of 2024 it is observed that:
These data suggest that formal employment depends not only on economic activity but also on real wages. In the 3rd quarter, job destruction tended to be greater than the fall in GDP, just when real wages began to show signs of growing. This trend has been observed for the past year. Between 3Q2023 and 1Q2024, output and real wages fell, while employment remained stagnant. From 2Q2024 onwards, the economy slowed down and real wages started to recover, while registered private salaried employment started to fall.
These trends are not conclusive, but they warn that formal employment depends not only on GDP but also on real wages. Assuming that inflation continues to fall next year, it is foreseeable that real wages will recover and, therefore, that job creation will be weak. In other words, in the absence of changes in labor institutions that allow companies to adapt to the non-inflationary environment, there is a high risk that economic growth will occur with low employment growth. The risks are heightened by a low real exchange rate and trade openness that promotes capital-intensive technologies imports. In economists’ jargon, with stability and poor labor regulations, the employment-output elasticity can be well below 0.7.
Congress made progress in some areas of labor legislation. Among the most important, it eliminated the multiplication of severance pay and extended the probationary period. But the context demands more ambitious reforms. An essential one is to establish an order of priority that makes the individual and company-level agreement above the collective bargaining of the central union. This implies that the Secretary of Labor should allow companies to disengage from the sectoral collective bargaining agreement in order to negotiate their own working conditions with their workers. In this way, companies will be able to expand their production while simultaneously increasing both employment and wages.
The truck drivers’ collective bargaining agreement conflict is a good example. The chambers of commerce and the truckers’ union agreed at a centralized level on increases that conspire against the stabilization plan. This led to the paradox of a libertarian government interfering in an agreement between private parties. Much more conducive and consistent is to allow collective agreement disengagement. That is, to give each company the freedom to negotiate with its workers its own wage conditions outside the truckers’ agreement.
