The latest Indec jobs report provided data that would invite optimism in a different context: the unemployment rate was 6.6% in the third quarter of the year, 0.3 percentage points below the record level for the same period in 2024. The data appears good, but hides a profound deterioration in job quality.
Unemployment fell because employment grew above the number of the economically active population. The problem is that this growth has not come through formal employment but through informal self-employment. Registered employment continues to stagnate and informality is no longer increasing through “black” work in companies, but through a growing mass of people earning their own income, often without even being registered in the monotributo. In most cases these are jobs with very low productivity, without social protection and with unstable income..
This phenomenon reflects the difficulty of companies – especially smaller ones – in absorbing workers in compliance with the regulations. If hiring employees is too expensive or too risky, employment doesn’t disappear: it moves toward self-employment.
A longer-term view confirms that this is a structural phenomenon. For more than two decades, formal enterprises have not increased their employment rates. In this context, the ruling party submitted a far-reaching labor reform project to Congress. The central aim of the project is to promote the formalization of employment and to lay the foundation for improving the quality of work.
Where is the informality?
Expectations for the reform are high. So much so that it was decided to postpone the discussion on pension reform, assuming that greater formalization of work would make it possible to improve the financial situation of the pension system. In other words, It is hoped that the project will spur such a massive job laundering process that the deficits in the pension system will be covered.
However, if you look at the structure of the labor market, corresponding doubts arise. According to Indec, 40% of private sector workers work informally. Of these, 80% work in companies with fewer than 10 employees, 16% in companies with 10 to 100 employees and only 4% in companies with more than 100 employees. For large companies, informal payment is therefore not a problemwhere their frequency is marginal, but a phenomenon concentrated almost exclusively in micro and small production units.
Will the project achieve its goal?
The project consists of about 200 articles that change very different points of the labor regulations. Given the complexity, the ease with which simplified analyzes are presented is striking. Given the extent of informal employment, the hypocrisy with which we talk about defending labor rights is striking..
When making an objective assessment, a variety of considerations arise. Perhaps most important is the lack of sensitivity to two key issues affecting smaller companies, the segment where there is the most scope for employee laundering: a) How inapplicable collective agreements are to this productive segment, historically designed on the basis of the largest companies and, after decades without deep updates, outdated and b) the very high social security contributions, which make formal employment significantly more expensive.
As far as collective bargaining is concerned, A sensible alternative would be to stipulate that collective agreements are not mandatory for companies with fewer than 10 employees.. In this type of company, where the differences between employer and employee are smaller than in a larger company, it is more realistic and sensible to require them to comply with general labor laws. It is much better for the employee and the company to comply with the laws than to break them, as is currently the case..
Labor reform: Nothing is worse
In the same sense, for the intermediate situations that arise in medium-sized companies, it would be advisable to allow the possibility of breaking away from the industry agreement and reaching company agreements with their employees adapted to their production reality.
With regard to social security contributions, the most direct and tax-effective way to relieve the burden on smaller companies is to introduce a tax-free minimum wage for employer contributions.. The Social Policy Council, an organization that constitutes the government itself, has proposed a minimum tax-free amount of 5 million pesos per month, meaning that companies with a payroll below that amount will not pay employer contributions and those that exceed that amount will be responsible for the excess. According to the Council, this would entail a fiscal cost of around 0.23% of GDP, significantly less than the costs that the Labor Assistance Fund would require, calculated at around 0.5% of GDP.
Evaluated with objectivity and realism, The project contains many measures that go in the right direction and many things that need to be improved. The main reason for this is probably their lack of sensitivity to the key issues affecting smaller businesses. Congress has the opportunity to correct this oversight. This can be achieved by allowing smaller companies to exempt themselves from old industry collective agreements and setting a tax-free minimum for employer contributions.
Economist at Idesa
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