Segmentation and poverty in a heterogeneous and low productivity country. The case of Argentina?s manufacturing

JUAN M. GRAÑA

Ginebra

Conferencia; Third conference of the Regulating for Decent Work Network; 2013

Organización Internacional del Trabajo

Since mid seventies, Argentina experience two very different trends in the labour market. By 1976, the military dictatorship abandoned the industrialization policies conceived and developed since 1930, and liberalized both goods and financial markets. The result through the next three decades was the destruction of the productive structure ?particularly high value added sectors, and small and medium enterprises (SME)-, high unemployment, declining real wages and, of course, labour market segmentation.  On the contrary, the last decade saw a reversal of those trends. After the collapse of 2002, Argentina devalues its currency ?previously pegged to the American dollar- and applies some policies in order to rebuild its productive sector. Although it had a tremendous -and rapid- success in terms of reducing unemployment (it fell from 25% to 8% in just 5 years) the accomplishments regarding wages and segmentation were limited. Average real wages recovered pre-crisis levels in 2007 and then stagnated through 2012. Moreover, its purchasing power is only 75% of 1970?s wages. Regarding labour market segmentation, Argentina still endures 30% informality in wage-earners -up from 20% in 1970s- and the income penalty for informal workers remains above 30%.   In this context, this paper tries to answer the question about why Argentina faces so many difficulties to return to labour market figures achieved in the past. To accomplish that we will discuss two different, though related, issues. On one hand, in domestic terms and revisiting the initial works of PREALC ?ILO program for Latin-America-, while SME companies can?t face competition because of their lower productivity on their own (that is without lowering wages, contractual conditions or health and security standards) labour market segmentation is the only likely outcome. On the other, if in average every company in the country needs to implement those strategies -due to an important international productivity gap- average employment conditions and wages tend to be worse than in the developed countries, resulting in poverty and low wages. In this context, Argentina fulfils both conditions. It faces an important international productivity gap and experiences an important internal heterogeneity of firms. Worst of all, this condition didn?t improve in the last decades. As a result average labour conditions and wages, even in high employment periods, face a structural limit for improvement (related to the international productivity gap) and, due to the internal heterogeneity of companies, employment conditions and wages tend to be even worse in smaller enterprises. As a result, wages differential and labour market segmentation tend to be permanent, but for the same reason wages cannot guarantee that the employee is out of poverty. Hence, in this paper we will try to argue that macroeconomic and industrial policies are an integral part of the policies implemented to promote inclusive labour markets. To support those conclusions we will present data ?since the seventies- on Argentina?s manufacturing sector labour conditions such as wages, informality and segmentation, in comparison with United States, taken as a proxy of a labour market conformed by relatively homogeneous companies that do not in general require lowering their labour standards in order to compete.