Employment and elections in Argentina

As the most heralded success or as the pink elephant in the room, employment in Argentina casts a long shadow for this October presidential election. Por Pablo Heidrich

Besides inflation, employment is the other dimension that touches voters’ lives most strongly in any country. Historically, contemporary Argentina has had very low levels of unemployment and its economy functioned until the late 1980s under a mode that economists call “full employment”, meaning that the whole economically active population was employed except for a small minority, of 4 to 5%, which was considered to be in between jobs or searching for their first one.
That reality, now remembered only by those over 35 years old, was very far from what happened during the 1990s, when unemployment averaged 15% and reached peaks of 19% in 1995, and even 24% in early 2002, during the post-Convertibility crisis. To match the current rate of unemployment of 9.8% (1st quarter 2007), we would need to look back at October of 1990, seventeen years ago (almost the age of the youngest voters…). That is a tremendous success for the current administration, especially when one notes that when Nestor Kirchner came to office, in May 2003, it was still as high as 21%. And since then, no less than 3 million new jobs have been created.
Another very positive qualifier is that a great deal of these new jobs, some 25-30%, has been in manufacturing, a sector that pays relative high wages to non-middle class people with high-school technical degrees or equivalent, thus extending the benefits of the economic recovery to a part of Argentine society that had not been on the winning side since the 1970s, when import substitution policies aided industrialization. In Kirchner’s times, some of that has returned in his decision to delay the appreciation of the peso, maintaining most of the competitiveness gained in the devaluation of 2002. His other policy of keeping energy costs below market prices have also helped the rapid growth of manufacturing industries, especially cars and auto parts, metallurgy, foodstuffs and textile. This contrasts starkly with the tepid job creation of the 1990s, mostly in the service sector, with low wages and a few privileged positions in finance and privatized utilities that went to the already comfortable upper-middle class.
Kirchner has tried to get the most mileage out of these reindustrialization policies and their effect on employment and income distribution. He led the charge from 2003 until 2005, enacting six increases in the minimum wage to set the floor for salary negotiations between unions and firms, and coordinating since the average increases in salaries in union-firms annual negotiations. This has several pay-offs, one is to extend the influence of his presidency over unions, never too friendly to left-of-center Peronist leaders, augment domestic demand to accelerate economic growth via increased salaries, and gain a position of acknowledged referee in the disputes between the business community and unions, thus becoming politically essential to both groups.
Therefore, the situation of the incumbent for the upcoming elections could be seen as excellent from the point of view of employment. The government’s economic policy is seen as having generated, or at least help generate, an enviable reduction in unemployment, the main driver of poverty in today’s Argentina and those benefits are being distributed. But as usual, reality is a bit more complex than what a few numbers and policy intentions tell. Such reduction in unemployment, even after considering the creation of that many good-paying jobs, has not been accompanied by a reduction in poverty numbers that is sufficient to match the best (or least bad) years of the previous decade. The conclusion derived is that more people have jobs today than then, but also that many of those jobs are not helping in keeping as much of the population out of poverty as they did in the 1990s.
The key here is that some other 30-40% of those new jobs being created outside industry are unregistered positions, paying less than the minimum monthly wage of 800 pesos (260 US dollars), and with their employers making no social security contributions for these workers’ pensions and health care. The low salaries and the lack of health care coverage in those jobs might be the most relevant causes why poverty has not decreased as much while unemployment has fallen.
Such rather obscure academic observation has however a strong shadow on voter preferences, explaining why many new workers (over 20% the current employees in every sector are people hired after 2003) can be happy for having jobs but simultaneously unhappy by their working situation. A recent poll by the Center for a New Economy of the University of Belgrano highlighted this by showing that while post people are satisfied to have a job, and even a good percentage by their current one, a strong majority considers their pay and working entitlements to be lagging. The resultant in electoral terms is that Kirchner, or his candidate for 2007, can get more votes if people see him as having created the conditions for those valued new jobs to appear, but could also lose votes if voters see him permitting such precarious working situations of millions of workers to continue, not allowing for a escape from poverty.
The government has been of late been working on that, making high profile campaigns to move firms to register their new workers and bring up their incomes to minimum standards. It has however focused this initiative on large metropolitan areas and attained a certain degree of success, reducing the percentage of unregistered jobs from 48.8% in 2002 to 41% in early 2007. That is equivalent to extending labor rights and social coverage to over a million workers. Nonetheless, unregistered employment in Argentina never passed 20% until the 1990s, when it skyrocketed to close to 50%, all meanwhile labor laws were modified in several instances to reduce workers’ rights, reduce compensation costs and limit premiums paid for unjustified terminations.
The plight of sub-standard employment in Argentina is heavily concentrated in several electoral-relevant dimensions. For example, according to most studies, unregistered workers constitute over 90% of domestic help (maids, childcare providers, cleaners), 80% of agricultural labor and 70% of employment in construction. Other important sectors are restaurants and hotels, commerce and even the own state, which often hires with just symbolic wages and pays large monthly bonuses for supposed productivity as a way to reduce its own payments for the social insurance and retirement contributions of its employees.
For economists, such labor informality is most puzzling since none of these sectors are affected by international competition, as they are non-tradable services, except for agriculture, where Argentina has such strong global competitiveness, which would make such strategy towards workers unnecessary. Besides, all these sectors are highly atomized, without a single firm setting up practices on how labor relations should be like. The state obviously has no competition and a sizeable account surplus, therefore no real reason to behave in such manner, either.
The probable conclusion has to do with something rather more political and structural, that Argentina is very much today a society where two different classes of economic citizenship can be afforded, and are systematically reproduced in every economic recovery. One is with registered jobs and rapidly increasing incomes, even after adjustment for inflation, in a fast growing economy. The other is with precarious employment under informal conditions, without legal rights and ultra low wages, watching how others benefit. How that situation can or will at all influence election results is a very good question. None of the opposition candidates seems to articulate any strong proposal in this regard, and the government claims to be doing already all it can.
For upcoming October then, the employment situation shall remain that pink elephant in the room that everyone has seen, knows about but will rather not talk about.