The recent surge in inflation and the subsequent drop in economic activity, following a staggering 118% jump in the exchange rate last December, have accelerated job losses at a pace not seen in previous crises. This trend appears to have been somewhat mitigated by declining wages in the formal sector.
These insights are drawn from a report by the Center for Training and Studies on Labor and Development (CETyD) at the University of San MartÃn (UNSAM), focusing on two critical macroeconomic variables: employment and income.
In July, trust in Javier Milei’s government again eroded, according to the University of Di Tella. This situation is uncomfortable for those who hold authoritarian views, as professional and critical journalism is vital for democracy and often clashes with their notion of owning the truth.
The destruction of jobs has been more rapid than in past economic downturns. By December 2023, the average salary for formal workers experienced its most significant monthly decline since at least the mid-1990s. Although there was some recovery over the next three months, wages remained historically low. By March 2024, the purchasing power of wages had returned to levels last seen in March 2008, sixteen years earlier.
The report indicates that this decline in wages helped to cushion the impact on formal employment in the early months of Milei’s presidency. Between the first trimesters of 2023 and 2024, formal employment shrank by 27,200 positions, with the construction sector suffering the most, losing 70,000 jobs during the same period.
Additionally, an annual comparison of production levels from January to March this year versus the previous year shows a 5% contraction in output. Meanwhile, prices for goods and services from companies rose by 253%, which was 20 percentage points lower than the Consumer Price Index (CPI), which surged by 273%.
Faced with this scenario, companies sought to maintain the labor cost per unit in order to preserve their profit margins per worker. As a result, they prioritized preventing job losses, recognizing that firing employees carries both economic costs and the risk of losing skilled human resources.
Consequently, wages became the primary adjustment variable to achieve this goal. In a climate of declining productivity, the nominal wage increases lagged behind the rising prices of goods and services, enabling companies to sustain their labor costs while softening job losses.
The analysis suggests that falling wages might have further encouraged the destruction of informal employment. Many informal workers already had severely diminished incomes even before the libertarian administration took over. The additional income drop this year may have discouraged them from actively seeking to retain or find work. For example, an informal worker in the lowest income decile had to spend 33% of their salary just on transportation costs.
Moving forward, the outlook for formal employment remains uncertain. According to UNSAM experts, while job losses continued after March, the pace has slowed down. By April, the sector had experienced eight consecutive months of decline, totaling a loss of 144,000 jobs since August 2023, primarily in the construction and industrial sectors, which accounted for 74% of the total job losses.
Currently, the sensitivity of employment to declining activity is lower than in previous cycles. However, as the economic contraction is more severe than in past crises (excluding the pandemic), job losses are occurring at an accelerated rate.
During the first eight months of employment decline, 92,000 jobs were lost between November 2015 and June 2016, 128,000 from May to December 2018 (continuing until January 2020), and 144,000 in the current phase from August 2023 to April 2024.
Looking ahead, projections for employment after May are not encouraging. The Labor Indicators Survey from the Ministry of Labor estimates a 0.3% month-over-month decline in formal private sector employment for May. Moreover, business expectations for June, July, and August indicate a slight increase in companies planning to reduce their workforce and stagnation among those intending to hire additional staff.
Although formal workers’ wages have partially regained purchasing power since December, they still remain lower than in 2023. After negotiating nominal pay increases that outstripped inflation in five of the six months of the first half of 2024, wages recovered more than half of the purchasing power lost in December 2023. As of June, the real salary is projected to be 5% lower than in November 2023.
Lastly, the report warns that despite this partial recovery, wages continue to hold historically low purchasing power levels, with the real wage value in May 2024 being equivalent to that of March 2009.
Source: https://www.perfil.com/noticias/economia/recesion-destruccion-empleo-acelero-mas-en-crisis-anteriores.phtml
