Layoffs, a hurting problem

Buenos Aires Herald. 30 de abril de 2016.

Protests can be understandable but union leaders forget to pave ground for new jobs

I read about layoffs condemming them, and asking for some sort of magical solution. It is not easy to find information on the extent of the problem. No doubt it is a most difficult problem, including moral and social issues. I will address it from an economic perspective, albeit extremely incomplete. As you know, economic ‘science‘ objectives are to reach full employment and growth in a context of stability and scarce resources. Economists disagree on how to do it, but not on the objectives.

To find any solution, we should address the causes and not the consequences. Yes, there is a need to dampen ill effects, but that is a band-aid on the problem and worst, it does not prevent it from happening again.

Private-sector managers do not want lay-offs. It is difficult and expensive to attract, train and retain good people. Absent a reason with a particular person (someone who is not up to the task), a layoff is only done when survival for the company is at risk. Company health may be at risk because of lower sales, increased costs, increased competition, all sorts of reasons. Such a decision is only reached when there are no possibilities of maintaining the employees; therefore, it cannot be a sudden problem. In a very rigid market like Argentina’s, it is extremely unfair to pin it on the change of government in December. Lack of profitability has been a problem for companies for a long while. At the same time, layoffs are indicating that there is no expectation of a sudden improvement in business. Argentina has long had a low level of economic activity (over four years for some sectors) and it will not recover soon.

Government employees have a whole set of regulations of their own. They enjoy labour stability, and in most cases salaries are low, but in some others they are extremely high. For the economy as a whole, public servants receive a higher average salary than private sector workers. At the same time, government salaries can only be paid through taxes on gainfully employed people at the private sector!

A major issue is that Argentina has a dual market place. Some people work in the formal sector, which implies a lot of taxes and some benefits. And there are people who work in the informal sector, who do not pay taxes, and may not be entitled to certain benefits. Government policies should address both groups. However, unions address only the employed, protecting their jobs and salaries, but hurting the possibilities of other people to find a job.

In the last few years the benefits have been reduced, and taxes increased: retirement payments are not only low but detached from the actual former pay of the retiree. At the same time, labour taxes have increased, and are well over 40% of total salary.

People who lose their job in a recession have difficulties in finding a new job. The importance of layoffs during the first quarter of 2016 is grossly exaggerated, but considering the last two years, the number of people in trouble quickly increases. Whether one dozen or one million people are jobless, there is a need to protect these people and at the same time all policies should be addressed to jumpstart the economy. Considering only the fiscal cost of unemployment payments is very naïve. Much more should be done, and here are a few policy suggestions:

Government subsidies for the unemployed should be shortlived, and — forgive me for saying this — not too generous, so that the person has an incentive to look for a job. Special circumstances should be addressed with specific programme, such as school-aged children, sick parents, disabilities, etc.

To improve the employment level, a lot of rigidities should be eliminated. For example, there are not only minimum salaries, or convenio salaries, but also AFIP determines and levies taxes on its own calculation of the minimum number of people expected to work on certain activities. Why keep such a mediaeval argument?

For certain jobs there should be certifications, but for most a general skill test, provided by the hiring company or an independent third party, should be simple enough to allow hiring and provide on-the-job training to people.

Leave of absence, seniority, and other rigidities should be changed in favour of the employee: give them the choice of how and when to get that money! Maybe somebody prefers to work than get holidays, or would rather get training and not other benefits, etc.

Unions, which collect massive amounts of money through each and every employee, whether or not he or she is unionized, could provide training, counselling and other very useful services.

Local governments could provide training, improve information sharing, day care, etc. It is particularly important that the kind and level of skills of people is widely disseminated. Those who want a job or can offer a job, should have an easy way to find each other. And of course, all options that create new jobs should be fostered.

Employers might share information on employees performance, and provide head notice of openings and what skills will be necessary, so that people can train in advance.
Government might eliminate taxes for new employees, for first jobs or market entrants, for training, and — a suggestion from Carlos Rodríguez from UCEMA — if an unemployed person who is receiving a subsidy finds a job, he or she should be exempt from labour tax payment...forever!

Third parties could provide skill and competence certification, share information, etc. Many countries have the equivalent of an ebay or Mercadolibre for skills, freelancers, etc. Some of those options are still an opportunity in Argentina.

People — whether or not employed — should be willing to retrain, provide information on their skills and look for a job while training.
Not having a job is a big problem. Not helping people be eligible for a new one is a sin.