By Orlando J. Ferreres

The decrease of employment rates, as it has happened in Argentina between 2012 and 2014, are bad news, particularly during an electoral year. It is widely known that employment depends on economic growth, but in our country there has been an economic slowdown for the past three years. Therefore, employment rates went down.

With economic growth comes employment. If there are not enough local workers to fill the jobs generated from large economic growth, immigrants from other countries are likely to come and fill them, as they will be paid higher salaries than in the countries they are from. An example of this is what occurred from 1880 to 1930, when a large number of European immigrants came to Argentina. Back then, they could earn in Argentina twice the amount they earned in Spain, Italy, France and other countries, according to the Maddison figures.

Considering the past 3 decades, our GDP’s growth was of 2.5% per year. There were years in which we grew up to 9% and years with an 11% annual recession. With modern technology and better working organization, industrial productivity growth can be estimated at 3.5% per year. But industrial productivity is above the increase of other sectors’ productivity. For instance productivity in the government’s bureaucratic sector almost does not grow. Therefore, an average growth of economic productivity can be estimated at 1% per year. That way, if we subtract from the GDP growth (an average of 2.5% per year) the productivity growth (an average of 1% per year) we have an advance of 1.5% per year as labour demand.

Our population grows around 1.3% per year, so, apparently, we would be having a positive balance between labour demand and supply. However, reality is quite different. We need to take into account that the active population has grown in comparison to the total population, an exception made during the past three years. In addition, migratory flows coming from neighbour countries looking for a job have remained constant, so the supply of candidates is larger than the demand from companies. Consequently, unemployment grows. This unemployment levels have been moderate and low, for the State has employed a large number of public servants in all three levels (national, provincial and municipal).

Also, the country’s low level of GDP growth during the past decades turns into real wages having a negligible growth for several years, which is frustrating for the average Argentinian citizen. In 2014, inflation was of 39% and salaries grew an annual average of 32.8%. This year inflation is calculated between 29-31% and salaries will grow on 25% according to official orders. Even if a 30% increase is reached after collective bargaining and strikes, real wages will not grow during 2015.

Another problem caused by low growth is informality –workers who do not have social security nor pension contributions- that reaches 35% of the population. Many people live in shanty towns or places where there is no gas, sewers nor tap water, with high levels of environmental pollution and with serious levels of physical insecurity as police forces cannot regularly control this urban territories.

In the past few years, urban population grew in 507.000 persons but, paradoxically employment went down (- 151.000 persons) and, what it is even stranger, unemployment also went down (-31.000 persons). These are contradictory numbers and the odd explanation is that 182.000 people stopped looking for a job, so they do not longer belong to the active population. There are doubts about the way active population is measured in cities where the National Institute of Statistics estimates urban employment and unemployment. Employment has decreased in the dynamic sector (productive) and this was overcompensated by the increase of public servants (bureaucratic employment). The labour market is strained after 12 years of the current public management.

As a conclusion, we may say that without investment, the number of companies in our country does not increase, and companies are the organizations that employ people productively. Acknowledging this is vital. During the past few years companies has been mistreated, so the investment coefficient regarding the GDP, measured in currency, is in 18.8%, which is very low. In Ecuador, that rate is between 28-29% because, even though the country has a similar political orientation than Argentina, the difference is that they have no inflation nor currency exchange restrictions as their currency is the American dollar. In China, the investment rate is 45-48%, therefore, the country growths at enormous rates.

Without education there are no trained candidates to work in an increasingly complex world and without respect towards the Constitution, there is no confidence to coagulate local or international savings into machinery and equipment, in fixed assets investments. With an 18.8% gross investment over GDP, it is not even possible to grow at a 2.5% rate per year. It is vital that everyone who talks about poverty and social exclusion finds out the causes of such situations, which basically is the lack of investment. Without investment, there is no future.

During the 1880-1914 period, investment in our country was of 27.2% of the GDP, reaching peaks of almost 55%. It was during that period when real wages were bigger in Argentina than in Europe, if we measure those wages considering the things we may buy with them, not by expressing these wages in an outdated official dollar.

This message is address to political and social leaders: if you want to eliminate poverty in the years to come, do everything you can to increase investment regarding GDP. Assistencialism is necessary and it is important to support it, but it does not solve the problem. During the past few years policies only tended to increase consumption and demand, but supply was not enough due to lack of investment. So the result was inflation instead of growth. It is essential to analyse the real facts and act accordingly.

Source: La Nación