Argentine employers are doing everything to cut costs - except lay off their workers
By ELIANA RASZEWSKI
Friday, January 18, 2019 Print Edition, Page B3
BUENOS AIRES -- Like many Argentine businessmen, Marco Meloni is doing everything he can to avoid laying off staff at his textile factory despite a slump in sales, 70-per-cent-plus interest rates and soaring utility bills.
The reason? He doesn't have the money to fire anyone.
A little-reported and unusual feature of the economic crisis gripping Latin America's third-largest economy is the absence of many workers losing their jobs.
Small businesses, the biggest employer in Argentina, have been hardest hit by inflation that is nearly 48 per cent, a tumbling peso and major cuts to subsidies for public utilities that have sharply increased companies' operating costs. But the unemployment rate has barely budged at 9 per cent.
Business owners in various industries are adopting different strategies to try to survive until the economy begins to recover, possibly in the second quarter, according to International Monetary Fund forecasts. Firms are reducing hours and making workers take vacations now in anticipation of more demand once the economy lifts.
The work force shrank by just 120,000 registered workers between October, 2017, and October, 2018, the latest government data show. That represents about 1 per cent of the 12 million-strong labour force.
Argentina has some of the world's most generous labour laws and they are making it harder for small-business owners to adapt in a recession. Typically, in a tough economic climate, a company might be expected to reduce its work force to cut costs.
But in Argentina, taking that step could dramatically increase costs and potentially push a company into bankruptcy.
Introduced by successive populist Peronist governments since the 1940s, the labour laws make the country one of the most expensive in Latin America to employ, or fire, workers. Argentine companies have to pay laid-off workers a month for every year of service plus at least one additional month simply for informing them they are being fired. And there's no cap on how much a company needs to pay.
In contrast, neighbouring Chile has a cap on severance pay. Layoff costs in Argentina are among the highest in the world, according to the World Bank. The laws have helped to contain what could have been a big increase in the unemployment rate.
In addition, President Mauricio Macri, a free marketer who wants to reform the rigid labour system to encourage foreign investment, is taking steps to dissuade companies from firing workers. He announced on Nov. 13 that companies must give 10 days notice of any plans to lay off workers so that the government can help find ways to keep them employed. Mr. Macri wants to expand an existing program that helps to subsidize salaries of workers at companies that can show they are in financial straits.
Like many businessmen, Mr. Meloni finds himself caught in a vise. Sales from his plant in Quilmes, 30 kilometres from Buenos Aires, shrank by slightly more than one-third last year as Argentina's economy sank deep into recession.
"It was not a storm," said Mr. Meloni, a reference to how the country's President has described the economic crisis. "It was a tsunami. The tsunami kills."
Mr. Meloni said his plant, which makes fabrics, used to operate 24 hours a day, Monday to Saturday, but now operates just 16 hours a day, five days a week. Like many other business owners, he advanced the holidays to his 100 employees with the hope that once summer ends in March, demand will pick up.
Daniel Funes de Rioja, the head of one of Argentina's biggest labour law firms, said a major issue for companies was the seniority of many workers. Many, especially in low-skilled industries, stay in the same job for years, so paying them severance becomes very expensive.
"There's a cultural custom for Argentines to remain in their jobs but also, as it has been always very expensive to fire people, that has extended the length of service of the workers in the companies," explained economist Camilo Tiscornia, from Buenos Aires-based C&T consultancy.
Argentine Production Minister Dante Sica said companies were also reluctant to fire workers because of forecasts showing an economic recovery around the corner.
"They prefer to suspend and not fire because of the cost of layoffs, plus the cost of hiring is costly," he said.
The unemployment rate in Argentina fell to 9 per cent in the third quarter from 9.6 per cent in the second quarter. Year on year, it increased only 0.7 basis points from the third quarter of 2017, when the economy was growing at an annual rate of 3.8 per cent.
While workers are staying in their jobs, they are earning less because of the shorter hours and fewer shifts. Some have resorted to taking second jobs, working for Uber, the ride-hailing app, for example, according to anecdotal reports.
"We are not happy with these measures at all [fewer shifts, shorter hours], but the last thing we want is layoffs," said Jose Minaberrigaray, head of Setia, a textile workers union that represents 25,000 workers. "But we have to choose what is bad and what is worse," he said.
Mr. Tiscornia, the economist, said the difficulty of firing workers ultimately hurts the competitiveness of Argentine firms.
"Making it easier to fire people or to reduce salaries improves the economy efficiency and the companies' capacity to adjust to different situations," he said.
"In the U.S., it's tremendously easy to fire, but at the same time, they are at the lowest historic jobless rate because that market has very strong flexibility. That favours the creation of new companies.
Here, if you start a business and it doesn't work, you're stuck with the employees, so you don't even try."
At the metallurgical company where Pablo Mansur, 31, works, production has fallen 30 per cent over the past 12 months. To keep busy, workers are painting, cleaning and doing repairs, Mr. Mansur said.
Workers were also told to take their vacations in December, a period when production would be low any way because of public holidays. He said workers agreed to this because "we are aware of the reality. It is not a whim," he said.
Jorge Gottert, president of Gottert, a 75year-old maker of production-line systems for the wood and auto sectors, says he has tried not to lay off workers because of his memories of what happened during the country's worst financial crisis in 2001.
Then, the company laid off half of its staff to try to survive. When the economy rebounded, however, it "became very difficult for us" as it took time to rebuild its work force, training new workers to operate the specialized machinery. We think this crisis will be shorter this time."