With crisis and uncertainty, unemployment decreases in Argentina at the expense of formal work

The economic situation in Argentina is so chaotic (inflation reached 78, 5% accumulated in 12 months in August) that even good news brings with it a cause for concern.

In September, the National Institute of Statistics and Censuses (Indec) announced that the country reached an unemployment rate of 6.9% in the second quarter, the lowest in seven years – a year earlier, the level was 9.6%.

The worrying aspect, however, is that employment in Argentina is growing thanks to informality, with lower wages and in which there are no discounts for social security.

According to Indec’s balance, salaried work corresponded to 73, 5% of occupation in the country at the end of the second quarter of this year. Among these workers, 37, 2% were formally hired and 37, 8 % informally. In the second quarter of 2021, the proportion was respectively 68, 5% and 31,5%.

In other words: unemployment in Argentina is decreasing at the expense of formal work. “The employment generated has been totally informal. The informality rate of salaried workers reached 37, 8%, and to this must be added the informal self-employed. All of this causes the quality of employment to be left aside”, said Anabel Chiara, coordinator of the Employment Observatory of the Undersecretary of Labor.

“It is also important that work to be informal due to the system of distribution of pensions that come from the collection of the tax on work. With fewer people contributing, it creates a problem within the system,” added Chiara, who asked for “incentives” for Argentine economic growth (6.5% in the first half of this year) to be anchored in formal employment.

However, for the lawyer and professor at the University of Buenos Aires Flavio Gonzalez, the historical instability of Argentina makes it difficult to formalize the workforce even in a scenario of economic growth.

“Uncertainty is a factor, now the activity has improved a little , but tomorrow may fall. Faced with this contingency, what can an entrepreneur, an employer do? Here, the problems begin”, he said, in an interview with Gazeta do Povo.

“In Argentina, we have a very strict labor system, so when a person is fired, they must pay compensation consisting of one month [de salário] for each year worked, in addition to prior notice, fines and high interest, in case of compensation obtained through court rulings”, explained Gonzalez, who also cited the heavy taxation on formal labor: employers must pay % on the employee salary for social security.

“Large companies register their employees, because they can face all these risks and expenses, but for a small company it costs a lot to face the consequences of a lawsuit or the monthly cost of taxes that entrepreneurs have to pay”, he detailed. “In a scenario of uncertainty, small companies are not encouraged to hire employees on a registered basis.”

A report last month by the Center for Metropolitan Studies (CEM) pointed out that 95% of informal salaried workers and 92% of precarious self-employed people in Argentina have earnings below the poverty line.

“This occurs in a context of low income and general decline in the purchasing power of workers in recent years, mainly from the crisis of 2018 and worsened by the pandemic”, highlighted the CEM report.

“The deepening of the inflationary spiral in recent months mainly affects workers in these segments, who, because they are not covered by labor legislation and because of not being unionized, they lack effective mechanisms to channel their claims”, he added.

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