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ECONOMY | 12-12-2020 08:53

Lengthy Covid lay-off ban backfires, postponing job crisis

Companies have been banned from firing workers since March, with the prohibition was recently extended into 2021. But many firms have resorted to suspensions, effectively postponing future job cuts.

The government’s blanket ban on firing workers during the pandemic looks like it’s storing up more problems than it solves in what was already one of the world’s worst job markets.

Argentina’s economy has an inflation rate around 40 percent, the Central Bank is perilously short of dollars, and talk of a currency devaluation is near-constant. The government is trying to restructure the US$44 billion it owes to the International Monetary Fund after the collapse of a loan programme last year.

Most emerging economies are finding it tough to come up with cash for pandemic relief efforts, including measures to protect jobs, the way their wealthier counterparts have done. It’s especially hard for President Alberto Fernández, who marks his one-year anniversary in office on Thursday.

His administration is running stimulus programmes that broadly resemble those deployed in other countries, including a paycheck protection programme to subsidise companies that retain their staff. But it’s had to print money to finance them – about 1.76 trillion pesos (US$21.5 billion) so far – and that’s fuelling fears of even higher inflation next year.

The government is weaning companies and informal workers off two separate paycheck relief programmes as dollar reserves run low – one reason it’s relying on the stick as well as the carrot to protect jobs.

Argentina has banned companies from firing workers since March, a prohibition no other major country has maintained for so long, and recently extended the measure into 2021. It’s also requiring companies to pay double the ordinary amount of severance if a worker is fired “without just cause,” according to a government decree.

Bankrupt businesses?

Some economists say the policies are jeopardising the jobs they’re trying to protect, and the government may face pressure to reverse them during talks with the IMF.

Unable to fire workers, companies have resorted to suspensions, which soared as much as 10 times from pre-pandemic levels during the firing ban, effectively postponing future job cuts.

“You’re going to have a lot of formal employment destroyed next year,” says Eduardo Levy Yeyati, a former Central Bank chief economist and Brookings Institution fellow. The government “at some point is going to have to allow companies to reduce personnel, because if not, many are going to go bankrupt.”

Unemployment in Argentina, as in most countries, has spiked this year. But the official rate of 13 percent doesn’t include 2.5 million workers – one-fifth of the registered labour force – who’ve left the formal job market entirely.

 

layoffs story bloomberg

 

If those people were counted too, the unemployment rate would be above 28 percent, according to a new report from the Catholic University of Argentina (UCA). There’s also a large informal sector, as in many Latin American countries, and employment there is collapsing too: it fell 35 percent in the second quarter of this year, government data shows.

“There’s always going to be a debate on measures such as lay-off restrictions,” says Argentine labour economist Roxana Maurizio, a consultant for the UN-backed International Labour Organisation (ILO). “How much can they help you today but create negative incentives for hiring tomorrow?”

In some ways, the debate is part of a wider one that’s been going on for decades in Argentina. Critics accuse left-populist governments like Fernández’s coalition of implementing policies –- from price controls to trade protections and labor rules that give broad powers to unions – that appease their voter base at the expense of the overall economy.

‘All that disappeared’

Argentina’s left, in turn, can point to the failures of right-wing governments like the one in power for the four years through 2019. It cut spending, implemented market-friendly policies and got a record IMF bailout – and still presided over an economic collapse.

Labour Minister Claudio Moroni acknowledges that the country’s current unemployment crisis may be its worst ever, but says the firing ban isn’t to blame.

“Attributing the Argentine economy’s problems to the job market’s design is excessive and outlandish,” Moroni said in an interview. “We’ve minimised the effects of the pandemic.”

 

layoffs story bloomberg

 

There was a glimmer of hope in September data released last week, which showed that the private sector added 6,500 jobs, the first monthly gain in two years. Still, private employment in 2020 remains down by more than 200,000 jobs – and there are other reasons to think the problem could get worse.

The number of businesses had been shrinking amid a three-year recession, and Argentina has now some 42,000 fewer private sector employers than it did in late 2017, government data show. The rate of Argentines entering the labour force is at its lowest level on record, according to Maurizio, the ILO economist. The World Economic Forum ranks Argentina 136th out of 141 nations in labour market flexibility.

There’s probably no policy shift that can do much for Sergio Bono. The 56-year-old was a pilot at Latam Airlines until the carrier pulled out of Argentina this year, citing the country’s anti-business climate and powerful unions.

“I was doing what I loved, I was at a good company, I was doing the most a pilot could do,” says Bono, who last flew an Airbus 320 in March. “I had a great salary for Argentina. All that disappeared in three months.”

 

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by Patrick Gillespie, Bloomberg

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