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Ban on layoffs is counterproductive in Argentina

(Bloomberg) – Argentina’s blanket ban on laying off workers during the pandemic appears to be creating more problems than it solves in what was already one of the world’s worst labor markets. Latin America’s third-largest economy has a rate of inflation near 40%, its central bank is dangerously short of dollars and there is almost constant talk of a devaluation of the currency. The government is trying to restructure the $ 44 billion it owes to the International Monetary Fund following the collapse of a loan program last year. Most emerging economies are finding it difficult to find cash for pandemic relief efforts, including measures to protect jobs, as have their wealthier counterparts. It is especially difficult for Argentine President Alberto Fernández, whose government celebrates its first anniversary on Thursday. His administration is running stimulus programs that largely resemble those deployed in other countries, including a paycheck protection program to subsidize companies that maintain their staff. But money has had to be printed to finance them, about 1.76 trillion pesos (US $ 21.5 billion) so far, and that fuels fears of even higher inflation next year. The government is pulling businesses and informal workers out of the business. two paycheck relief programs as dollar reserves deplete, one reason it relies on the right incentives to protect jobs. Since March, Argentina has banned companies from laying off workers, a ban no other country has It has held for so long, and recently extended the measure until 2021. It also requires companies to pay twice the ordinary severance pay if a worker is fired “without just cause,” according to a government decree. Bankrupt companies? Some economists say the policies endanger the jobs they are trying to protect and that the government may face pressure to reverse them during talks. Failing to fire workers, companies have resorted to suspensions, which during the layoff ban soared up to 10 times from pre-pandemic levels, effectively postponing future job cuts. ” You are going to have a lot of formal job destruction next year, ”says Eduardo Levy Yeyati, former chief economist of the Central Bank of Argentina and member of the Brookings Institution. The Government “will have to let you reduce your staff because, if not, many companies will fail.” Unemployment in Argentina, as in most countries, has skyrocketed this year. But the official rate of 13% does not include the 2.5 million workers, one-fifth of the registered workforce, who have left the formal labor market entirely. If those people were also counted, the unemployment rate would be higher than 28%, according to a new report from the Catholic University of Argentina. There is also a large informal sector, as in many Latin American countries, and employment is also collapsing: it fell 35% in the second quarter of this year, according to government data. “Always in these measures of rising costs or restrictions on layoffs , always the argument is, to what extent can they help you today, but can they generate negative incentives for hiring tomorrow? ”says Argentine labor economist Roxana Maurizio, consultant for the UN International Labor Organization. The debate is part of a larger one that has been going on for decades in Argentina. Critics accuse left-wing populist governments, such as Fernández’s coalition, of implementing policies, from price controls to trade protections and labor rules that give wide powers to unions, which placate their voter base at the expense of the economy in ‘Everything that disappeared’ The Argentine left, in turn, can point to the failures of right-wing governments like the one that was in power during the four years until 2019. It reduced spending, implemented market-friendly policies and obtained a record bailout of the IMF, and still experienced an economic collapse. Claudio Moroni, Fernández’s Labor Minister, acknowledges that the country’s current unemployment crisis may be the worst in its history, but says that the ban is not the culprit. ” Attributing the problems of the Argentine economy to the design of the labor market is an excess, it is an excess, ”Moroni said in an interview. “We have minimized the effects of the pandemic.” There was a glimmer of hope in September data released last week, which showed the private sector added 6,500 jobs, the first monthly increase in two years. Even so, private employment in 2020 continues to register a drop of more than 200,000 jobs, and there are other reasons to think that the problem could get worse: the number of companies had been reduced in the middle of a three-year recession, and Argentina now has About 42,000 fewer employers in the private sector than at the end of 2017, according to government data. The rate of Argentines entering the labor force is at its lowest level on record, according to Maurizio, the ILO economist. The World Economic Forum ranks Argentina 136th out of 141 countries in terms of labor flexibility. There is probably no policy change that can do much for Sergio Bono. The 56-year-old pilot worked at Latam Airlines until the airline withdrew from Argentina this year, citing the country’s anti-business climate and powerful unions. “I was doing what I loved, I was in a very good company, I was doing the most a pilot can do, ”says Bono, who last flew an Airbus 320 in March. “I had a salary that for the environment in Argentina was very good, that disappeared in three months.” Original Note: Covid Layoff Ban Backfires in One of World’s Worst Job MarketsFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source. © 2020 Bloomberg LP

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