Maintaining Employment Through the Crisis

Diana Tussie

The cost of active labor policies – policies to preserve employment in an economic downturn – have become an important part of global discussions to manage the crisis.  A widely held myth is that experience with active labor policies resides in OECD countries and that these are very costly to replicate for cash strapped countries in today´s circumstances.

In fact Latin America has accumulated experience in several areas of active labor policies. Argentina was an early starter during its own crisis in 2001 with incentives to keep people busy. The economic meltdown had left skyrocketing unemployment, widespread social scars but also some lessons. Thus the Global Recession found Argentina with muscles flexed, as Pablo Trucco and I show in a recent paper.

The REPRO Program (as known under the Spanish acronym for Programa de Recuperacion Productiva) was created in 2002 to put a stop on snowballing layoffs. REPRO received a swift new lease on life as soon as the Global Recession hit Argentine employment indicators in 2008. Given the long tradition of informality, the retention of workers in formal employment was a paramount concern. Everyone dreaded a setback, so REPRO was speedily unearthed. This is a very simple and circumscribed program.

In order to qualify for support, businesses need to provide past evidence of profitability and solid prospects over the hump. They must submit a list of the workers they want to retain and who will eventually obtain benefits paid directly. The grants goes to each worker as a monthly stipend of up to US$150 (AR$ 600) for a period of up to 12 months. Although the direct beneficiaries are the workers, the firms also come out better-off since they can deduct the amount paid in by the government from each worker´s salary and still comply with the collective bargaining agreement reached with unions. In addition, firms enjoy a cut on their social security burden since the contribution they owe is calculated on the reduced share of the salary. In return, the firm makes a commitment to refrain from layoffs. The federal government monitors the agreements with onsite visits as well as by checking with the tax revenue service and the social security agency whether firms have in fact retained employees. If they are found to be in breach of commitments, the benefits expire immediately and a suit for fraud is filed.

The program, which does not discriminate between foreign and nationally owned firms, is de facto countercyclical – financing strengthens when employment falls. The year before the Global Recession only 85 firms had received support for a mere 14.150 jobs. In 2009 the number of beneficiaries then jumped by 470%. The allocation of REPRO benefits followed the demand of firms and were therefore directed towards the sectors most sensitive to the economic downfall. Fruit and vegetable growers ranked first in the list of beneficiaries badly hit by the sudden stop of exports to Europe, followed by mechanical goods hit by slower demand from Brazil; the textile and garment sector came in third in the ranking feeling the pinch of increased import competition at home. In 2009 REPRO supported about 145.200 workers who retained their jobs through the crisis. On average, each of these preserved jobs had a cost of US$951 to the taxpayer. True to its spirit, a larger number of small and medium enterprises received the benefit in contrast to firms employing over 300 workers.

The extensive distribution of resources as well as the number of beneficiaries allowed the economy to weather the storm during 2009 with relative ease. To the surprise of all and sundry, political maneuvering has been largely absent. The goal of preventing massive layoffs (and dreaded social unrest) was kept in line so there was little if any distribution of political favor. Fear of re-enacting familiar troubles was the counsel that ruled all through.

Is there something to learn from such small surgical interventions? Don´t we need to start a record of active labor policies that at a relatively small cost save jobs in order to share lessons with counterparts in other countries?

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