Opinion

Informal employment in Argentina: will it motivate a labor reform?

28 September 2017

Labor cost in Argentina exceeds by far the salary received by the employee, in comparison to most of the countries of the region. The situation generates disagreement in employers and employees, and sometimes encourages the informality of labor relations. The Argentine administration aims at a labor reform to address this and other issues, although it may not fulfill the expectations of the business sector.

Countries:

According to the Inter-American Development Bank (IDB), most jobs in Latin America and the Caribbean remain informal and highly unstable. The situation is a chain reaction in which high turnover discourages the education and training of the employee, resulting in low productivity, which in relation to the costs of the formality, influences a high informality. Likewise, some courts' biased interpretation of labor law (e.g., termination with good cause) sometimes lead to irrational costs.

On the other hand, the cost of occupational risks has increased significantly in Argentina, basically due to the high degree of litigation related to sickness and disability benefits; the increase in the number of trials initiated by work-related injuries, well above accidents at work, is remarkable. In this regard, Law 27.348 came into force on March, and seeks to improve the working conditions of employees and disrupt the judicial scope. This law requires the support of the provinces to extend its impact to the national territory.

It is also challenging to update wages affected by inflation. In recent years, there have been many situations in which employees belonging to collective labor agreements have received salary increases higher than those obtained by colleagues outside the scope of collective agreements. This could be exacerbated in cases of middle and high management which are subject to the income tax.

Generating formal jobs in Argentina

Paradoxically, it is the formalization of unregistered employment that would improve the sustainability of the system, allowing a significant reduction of overcharges.

Within the current labor environment in Argentina, it is necessary to adopt measures that generate more sustainable employment and better employability. The high labor cost affects the international competitiveness of companies, preventing overcoming the informality that affects more than a third of employees in the country.

It has been reported that the difficulty of generating formal jobs in Argentina is related to the heavy tax burden and the current government is not indifferent to this situation. The Ministry of Economy has acknowledged that "taxes applied over labor restrain job creation".

Labor reform 

According to Argentina's first multidimensional economic study prepared by the Organization for Economic Co-operation and Development (OECD), Argentina must carry out further reforms that would entail substantial benefits, although it has already made some very important changes that show that it is on a good track.

A labor reform, specifically, is one of the issues that the Government will raise after the October legislative elections. Basically, the expectations of Argentine entrepreneurs are focused on a reduction of employers' contributions, the decentralization of collective negotiations and the easing of hire and termination conditions. However, according to local circumstances, it would be difficult to implement such radical changes in labor matters as those recently introduced in Brazil. It is argued that the most immediate changes would be focused on facilitating the regularization of informal labor relations, for example, through moratorium schemes, which would attack the consequences but not the causes of the current labor system.

If you would like to know more about the key considerations that companies should take into account regarding human resources and payroll, you can read the following article.

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Written by

Hernán Kogan

Director Client Service

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