Photo via Infobae.

It is to be expected that right-leaning President Mauricio Macri is at odds with Argentina’s powerful and entrenched labor unions. Macri’s market-oriented economic growth plans are seemingly in conflict with the unions’ goals and principals. This month, the conflict between Macri and the labor unions is coming to head. A proposed law to forbid layoffs in the public and private sectors until the end of 2016 is making its way through Congress.

If it passes, and it likely will, Macri will have no choice but to veto the law, which the unions will use as an excuse to call a general strike that will grind the country to a temporary halt for a day or more.

In a press conference this morning, Macri called for Peronist senator and former presidential candidate for the Renewal Front (FR) party Sergio Massa to lead the non-kirchnerite Peronists in opposing the law. Macri claims that “the problem is not a massive wave of layoffs,” rather, “a stagnation” in the creation of new jobs.

Is he correct? And more importantly, if the net result is not enough jobs, does it matter politically?

How Big Of A Problem Is Unemployment?

Characterizing employment in Argentina is surprisingly tricky, and further complicated by the deep political convictions and agendas espoused by politicians who typically discuss employment statistics. Let’s start with what we do know.

Immediately upon taking office in December 2015, Macri fired 20,000 public employees, most of whom had been hired recently at the end of former President Cristina Fernández de Kirchner’s term. By the end of March 2016, 107,000 people had lost their jobs in both the public and private sectors according to the private consulting firm Tendencias Económicas. By the end of April, the Argentine Chamber of Medium Businesses (CAME) estimated this figure to be 120,000 based on surveys and private studies. CAME estimated that public sector losses represent about 30-40 percent, and that the private sector losses of about 55,000 jobs are concentrated in construction, followed by losses in petroleum, mining and industry.

Finance Minister Alfonso Prat-Gay once again stunned the collective world with his apparent lack of sensitivity when he stated that, “There is a false sensation that we are experiencing notable losses of employment… in the first trimester, the percentage of workers who have lost their jobs is the lowest in the last seven years.” Fact-checker website Chequeado looked into Prat-Gay’s statement and found it to be false.

When you consider private sector data from the Labor Ministry alone, not taking into account the large public sector layoffs, the rate of layoffs in 2016 (the black bar in the graph below) is below that in 2009, 2011 and 2012. So while not sensationally high, this year is not the lowest in the past seven years; rather, it is the third highest since 2007. Furthermore, suspensions (the red bar), or reductions in hours or days of work, have fallen at record levels along with the number of new hires.

From these numbers, it is reasonable to conclude the following:

  1. The public sector layoffs since Macri took power are in the ballpark of 48,000 jobs lost
  2. The private sector losses of roughly 72,000 jobs are at the high end of what has been normal since 2007
  3. In the past, during this time period, private sector losses were to some extent compensated by job creation in the public sector

So in some sense, Macri is correct in that the private sector has not seen a tremendous wave of layoffs. The public sector however has both taken a noteworthy hit and has not compensated for losses in the private sector.

The Infamous Public Sector

Former President Cristina drew harsh criticism at home and abroad for massive public sector hiring, especially during the final months of her term. By 2013, 17 percent of the nation was formally employed by the public sector at either the federal, provincial or municipal level. While this number is not high by international standards when compared to the majority of Organization for Economic Cooperation and Development (OECD) countries, the concentration of these jobs in certain provinces is concerning. As illustrated in the map below, In Cristina’s home province of Santa Cruz, this number reached 41 percent.

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2013 Public Employment by Province in Argentina (image/chequeado.com)

 

In 2014, former Interior Minister Florencio Randazzo hired close to 8,000 new positions, or 22 per day. Perfil and the Argentine Institute for Fiscal Analysis (Iaraf) estimated that 75 percent of new jobs created in the first half of 2015 were in the public sector. In the months leading up to Macri’s election, new hires continued to rise daily, with announcements of hundreds of job openings per day. Even looking at the national statistics agency INDEC’s employment paints a picture that is unusual at best and disappointing at worst. While unemployment fell unequivocally during former President Néstor Kirchner’s first term through 2007, it leveled out from 2011-2015. Furthermore, the decrease in unemployment was not matched by an increase in employment. Some suggest this is due to playing with the definition of unemployment.

In some circles, the Kirchners are credited with allegedly destroying the work ethic of the population by creating a class dependent on government handouts and employment. This charge is difficult to support or substantiate, but seeing how quickly the situation has unraveled it is fair to conclude the following:

  1. The former administration used public employment as a tool compensate for rather than complement and/or support private sector development in a manner that was both unsustainable economically and skewed towards certain provinces (ahem, Cristina’s own)
  2. The interventions in Argentina’s labor market were detrimental in the medium/long term
  3. By abusing the INDEC national statistics agency, the tools to correctly diagnose and address employment were also damaged

Macri knew this when he took office, and as President his job is to find solutions for the future, not to live in the past.

The Outlook

On the employment front, if the Macri administration is relying on private sector job creation alone to solve this dilemma, they may be up a creek using a tennis racket for a paddle. Despite having settled with the holdout “vulture” funds and returned to international capital markets with a large bond raise, Argentina feels risky. Inflation has reached monthly levels not seen since before Kirchnerism, and utility hikes and increases in gas prices coupled with lack of local financing options has companies feeling understandably cautious about taking on new employees.

Inflation has brought with it precipitous drops in sales at all levels. The Economist Intelligence Unit data shows export of industrial goods falling by over 20 percent year on year, and that despite the currency devaluation and realignment of the Argentine peso, the currency has appreciated in real terms especially against its neighbor Brazil, “offsetting positive steps by the new government to encourage production… which should in theory facilitate the import of much-needed intermediate inputs.” In fact, first quarter data “suggest that a recovery in industrial activity remains some way off,” based on a 12 percent decrease in the import of intermediate goods and 1 percent decrease in capital goods. Those are not the signs of an economy about to turn around, and Argentina is facing hostile conditions from lagging Brazil and a general international trend away from emerging market investment.

While the blame for laying the groundwork for such shaky conditions does rest with the former government, that does not give Macri’s administration an excuse to apply some slapdash elements of the Washington Consensus and expect private sector results in an unrealistic time period, especially in the labor market which tends to lag the business cycle. Unless you’re 19 and just took Economics 101, a modicum of real-life experience should have put this administration’s expectations more in line with reality and prepared it to deal with a messy 12 to 18 months of painful readjustment.

Readjustment

Macri’s political decision to campaign on a platform of removing currency controls and outrageous export barriers while promising no “tightening” or painful readjustment period was understandable. His team’s decision to continue to cling to this economically preposterous idea even months after taking office is baffling. Argentina needs to buckle up for a rough year, and that means mitigating the effects of readjustment on the most vulnerable members of the population and demonstrating leadership by not reiterating campaign promises.

The steps Macri has taken to address the employment crisis are more ideological than results oriented. In response to the call for a freeze on firing people, he presented a bill that gives companies tax breaks for hiring people aged between 18 and 24. This will not compensate for the absence of money that his predecessor pumped into public job creation and building public works that went to the construction industry.

Macri’s “Zero Poverty” plan (Pobreza Cero) promises to create 1.5 million jobs in the private sector in the next four years. Economists consulted by Chequeado estimate that to reach this goal, Argentina would have to grow by at least 7 percent annually, an exceptionally lofty goal given global conditions. Even under the best conditions, expecting private foreign investment to charge blindly into Argentina so soon after a theoretical return to “normalcy” is unrealistic.

President Macri would be well served to put on his Peronist pants and play politics at home by acknowledging the economic hurt being caused by a necessary readjustment currently taking place. Soundbites that imply he is trying to negate his responsibility for the country’s employment crisis on a technicality don’t play well with people facing uncertain employment prospects while their purchasing power is being eroded.