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Argentina: Volatility, ambiguity and anxiety: Three issues for 2023


By Julian De Diego, Libertad y Progreso


The year 2023 is likely to be volatile, uncertain, complex and ambiguous (VUCA), just like the post-pandemic period, which experts predict will be brittle, anxious, non-linear and incomprehensible (BANI). These two acronyms summarize all the challenges that lie ahead.

Since this is an election year, it is possible that protests will be organized by populist groups. The aim would be to lead the Government to take contradictory decisions: bonuses for the private sector, increases in welfare programs, and no economic plan to limit public spending or strike a balance amid the growing fiscal deficit.

We are still undergoing a process of economic reactivation with inflation (Reactiveflation or Reactflation), where most industries and services remain active, despite forex difficulties, US dollar shortage, dwindling bank reserves and restrictions on imports, which largely impair further economic growth.​ For a variety of reasons, stagflation has stopped, and the negative elements are a high tax burden and soaring inflation, which lead to a constant increase in prices, thus hitting income hard.

In this very delicate scenario, the unemployment rate has reached its lowest record, 6.7%, measuring the economically active population, with special emphasis on the hiring of IT workers.

Social groups are demanding the transformation of welfare programs into job opportunities and quality registered employment. This contradiction also implies that there is a deep crisis characterized by the inadequacy and ineffectiveness of welfare programs, which perpetuate a significant number of low-incomers in poverty and indigence.

Collective bargaining agreements cover more than 70% of registered workers. The struggle to keep pace with inflation has led to the creation of mechanisms to grant raises over the inflation rate by a couple of points (2 to 4 percentage points), usually by means of fixed amounts or bonuses, or additional payments in those industrial sectors that are doing well, in general whose business relies on exports.

A bimonetary economy with pesos and US dollars having different exchange rates in the market naturally creates a striking phenomenon of wage dollarization for management positions and IT companies. In reality, those who earn income that have the possibility of saving protect it in foreign currencies, usually bought on the black market. Further, management and businesses related to new technologies have serious difficulty paying salaries in foreign currencies because of the formalities and legal requirements involved.

Among those workers who work in the informal market, many of whom are also beneficiaries of welfare programs, there is a pretty broad panorama including those who earn rather basic amounts off the books below ARS 70,000 until those who get paid equal to or higher than the net income of formal employees. This is a market that involves more than 40% of the population and poses one of the greatest challenges facing the next administration, which will have to build bridges to train the most vulnerable sectors to give them employability skills, which are necessary on the job market, as well as to combat work off the books. The national, provincial and municipal authorities should regularize the employment of their staff.

The labor reform that many experts propose will be put off because it is not welcomed by the electorate. Just a few candidates dare to speak of a Termination Fund to ensure severance pay for terminated employees, and a reduction in working time from 8 daily hours or 48 weekly hours to 40 hours per week.

Unions will adjust their forms of protest according to the political needs of the candidates of the ruling party, without abandoning their demand for raises to keep up with inflation, through actions especially aimed at attracting voters, in particular the young, who are extremely frustrated with the results of the current administration, and demand the future government to meet the unfulfilled promises.

Overall, we can expect the following employment and labor trends for 2023:

  • Inflation will be the number one enemy of production, industry and services; raises should keep up with the general increases in prices; and the burden of taxation will be heavy;
  • The National Government will have to face a race between prices and wages through price controls, careful pricing, and price freezes, which have not worked in the past. Unions will make claims in order to keep their leadership even though they know that this problem cannot be solved with short-term measures;
  • Wages will be periodically increased in accordance with INDEC CPI;
  • In addition, there will be widespread social claims, especially from the most vulnerable sectors, who will demand and organize periodic public demonstrations to show their dissatisfaction. In 2022 protests and demonstrations broke a record and are expected to be even more frequent in 2023. Conflicts and social demands will be more frequent, with more people involved than the eventual labor disputes that usually arise when wages are not enough to meet people’s needs;
  • Each industrial sector will demand the necessary mechanisms to promote exports, improve sales and create new markets, taking into account that the post-pandemic circumstances and the Russian war in Ukraine have triggered a number of critical demands from abroad that can open up new horizons with new buyers, especially from those core countries that are enduring the restrictions of the new geopolitical panorama;
  • During collective bargaining, both unions and employers reject any increases through fixed amounts. Special emphasis is put on collective bargaining for each company or group of companies;
  • If there is no comprehensive economic plan, the entire economy, and particularly the world of work, will be at a crossroads, with many challenges, turning the political conversation and electoral debates to the specific economic plans each candidate may propose, which will call for individual and collective labor reforms.

By Julian De Diego, Lawyer. Employment advisor of companies and chambers of business. Academic Counselor for Libertad y Progreso.