Unions and an inflation rate of 100%: Payments and revisions

Julian De Diego

Lawyer. Employment advisor of companies and chambers of business. Academic Counselor for Libertad y Progreso.

EL CRONISTA: In the second half of 2022, moderate CGT leaders will gradually demand pay increases equal to the total inflation rate of the year, which everybody is already estimating at no less than 100% plus a recovery percentage, with a revision in November or December, and no later than January or February 2023.
There are four reasons why there will be an across-the-board pay raise under collective bargaining agreements:

We are in the middle of a selective reactivation process that is getting more widespread (reactivation + inflation) and our country has already gone through a period of stagflation (inflation + recession). In international terms we overcame stagflation, and are now undergoing a process of reactiveflation, combining reactivation with inflation;

1 – Wages have been distorted, particularly because of the economic paralysis during the pandemic (2020/2021), from which we have never fully recovered, and are now lagging behind;

2 – Many wages under collective bargaining agreements are not enough to cover the market basket for an average family measured by INDEC (National Institute of Statistics and Census), or any other market baskets measured by universities and private consultancy firms;

3 – Base wages under collective bargaining agreement during any reactivation process are the actual take-home pay that a registered worker earns in more than half of the industrial sectors that are undergoing a gradual process of reactivation.

The Central Bank of Argentina has reported that the inflation rate for 2022 is estimated at around 99%, similar to what many private consultancy firms forecast or what the statistics by some provincial agencies or universities are showing. The biggest impact is on essentials, which are the top-priority expenses for any worker.

Most unions started this year estimating a 40% inflation rate, and based on such forecast the Minimum Wage was set. Everything changed in the second half of the year. In fact, just a few days ago the National Council on Employment, Productivity and Minimum Wage made a revision, together with the Department of Labor, the employers represented by the business organizations and the CGT, with 81% raise to be revised again for the second time this year in November. The two groups that opposed this increase was the faction of the CTA that supports the National Government and the parallel CTA, both of which are part of the National Council, although nobody knows why they belong to this Committee because they do not meet the eligibility legal requirements to do so.

The leading unions have begun informal consultation processes, and there are three very clear systems have emerged, namely:
a. The first group promotes an increase payable in two or three installments as from September, with a revision at the end of the year or in January or February 2023;
b. The second group divides the increase between installments and additional payments, such as the year-end bonus, Union’s day or the celebration of any other event, or the adjustment of frozen or deferred additional amounts, with a revision by the end of the year as well;
c. The third group has agreed on an updating system once the total inflation rate is disclosed, and sometimes based on the forecast inflation rate, which is usually adjusted quarterly, combining INDEC Consumer Price Index with other local or regional indexes.

The revision clause is a fundamental tool for unions’ strategy to recover buying power based on the inflation rate of the year, and that is why they reach agreements that do not set one but two or three dates to go over the agreed terms and see if they keep pace with the total CPI published by INDEC. Some agreements combine INDEC CPI with other measurements made by universities or provincial or regional agencies in an attempt to parameterize the results of at least one official source and a private, public or mixed source as well. This is the case of SMATA agreements with different car and truck assembly terminals.

For more than 40% of the unions, wages have been lagging behind inflation rate for so long that it is imperative to recover the buying power lost since forever and in the toughest moments of the pandemic (2020/2021). Proposals include additional fixed payments, variable pay scales with additional raises payable in installments or just adjustments based on the total CPI by INDEC. In other words, the race between prices and wages, and a 100% inflation rate hurts us all: workers who have lost their buying power; employers who are under pressure due to the impact of inflation and taxes; and the State who fails to regain trust to mitigate the ups and downs of the market, amid uncertainty, unpredictability, and a constant change in the rules of the game.

Collective bargaining agreements should take into consideration the situation at each company; small businesses should have tools for job creation; and instead of keeping wages at a constant value based on the inflation rate, wages should be variable based on productivity. The scenario is constantly changing, but in the case of wage negotiations for 2022, the die is cast, and 2023 will be a year of full reactivation but beset on all sides by the scourge of inflation.