Work Abroad but earn in USD

Monday, March 24, 2008

The Irony of the Argentinean Job Market

Employees in Argentina

It has been remarked to me by many a businessman/entrepreneur/executive, that employing good workers is both one of the biggest keys to the success of a business and one of the hardest things to achieve. Obviously, some unique conditions exist in Argentina that make employing people here different than in the U.S. and in general, harder. The difficulties in having employees come from costly benefits and retirement, disloyalty, and greater degree of mis/distrust in Argentina as compared to the U.S.

Two basic types of employment exist in Argentina: “en blanco” or “in the white (legal)” and “en negro” or “in the black (not so legal)”. The difference between these two lies in the benefits paid to the employee which can break the bank of even a well backed business. To be in full compliance with the law, employers must pay around 45% above and beyond an employee’s salary for benefits, retirement and tax. This means that if you want to pay an employee 2000 pesos per month (a decent but not high salary here), then you must add 900 additional pesos to this that will be put into this employee’s retirement and benefits. Of course, this is an outrageous number. So outrageous, that somewhere between 30% and 60% of all persons employed in Argentina are employed en negro. This means that the employer pays no benefits whatsoever to the employee. The reason that so much “trabajo en negro” exists is that unemployment is high, jobs are scarce, and the government does not enforce labor law (until after the fact), so companies can get away with not paying benefits. But at the same time, whoever creates these policies should seriously take a look at the incentive that employers have to pay their employees so far above and beyond their actual salaries. Economics tells us that we must find the balance between lowering the cost to the employer and the number of employers who would be willing to pay this extra cost of having employees to find the greatest number of employers willing to pay a certain level of benefits. As the percentage paid toward benefits goes down, the incentive for employers to pay those benefits should go up, driving up the number of employees enjoying benefits. But this type of thinking seems to fall outside of the realm of what is possible here…

The irony of all of this, is that most Argentine employees, because they have worked en negro, will sue their former employers for having employed them as such… and win! Nearly all former employees employed en negro either win their lawsuit against their former employer or settle out of court before going to trial (the statistics are quite meaningless because of the latter number). So be warned all foreigners who wish to pay their employees this way: it may cost you in the long run.

Another costly part of employees in Argentina is the disloyalty, and general lack of motivation coupled with a high degree of mis/distrust. One would think that because of the scarcity of jobs here that people would be quite loyal to their employer and show a lot of incentive to do right by their company so that they do not get fired. In reality, most employers are afraid to fire their employees because of the aforementioned law suits that can come from termination. The incentive for employees to work hard to keep their jobs is very low because they know that their employer is afraid to fire them. Moreover, owners and employers, being afraid to fire their employees and thus knowing that they will probably be stuck with poor workplace relationships and unmotivated workers, will not be inclined to give bonuses, raises, commissions, or other types of compensation based on incentive. I have been called “completamente loco” for having suggested the idea of very high commissions for sales based employees. It only seems logical to me that if an employee can be motivated through cash incentives tied to work done that a win-win situation will be created. The lack, however, of such incentives in the workplace in Argentina create many disloyal employees. If they don’t see a way to gain from working hard for their company, and they see no long term benefits being paid toward their retirement, what incentive do they have to stay with a particular job?

In addition to these problems and as discussed in the previous blog, a very common practice, especially for family run businesses (which make up the vast majority here), is to put only family members in positions of management and money handling to prevent theft, fraud, and laziness. This quite often takes the form of a single person who manages the cash register at an ice cream shop or bar or clothing shop where that person will be responsible for all the money handling and all other employees take care of operations. This in and of itself does not represent a direct problem with employment but it does limit the choices as to who business owners select to run their tills. The limit that they place on who they trust (the famed “gente de confianza”) will by default limit the number of choices that they have to run a key aspect of their business.

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Anonymous Anonymous said...

I wonder who this would work if you were to hire a freelance worker such as a writer, web designer, or graphic designer?

Would they work 'en negro' or 'en blanco'?

Also would a 2000 ARS/month salary something an Argentine professional (ie engineer, tech professional, programmer, project manager, accountant) expect to earn or is this the salary for a clerk, receptionist or office manager?

3/26/2008 05:19:00 PM  
Anonymous Anonymous said...

I can speak from experience, pay your employees and workers above the table and get or give reciepts/facturas for all cash transactions. We had a "chanta" say he was our employee for 12 months and ended up settling out of court, even though he never worked for us.

3/26/2008 09:17:00 PM  
Anonymous Anonymous said...

You have written the truth. I have a business here and I have been through it all. Work attitudes are poor here combined with a sense of entitlement and social resentment. A lot of Argentines seem to think that they are entitled to as much as their employers, not realizing that their employers have worked hardm sacrificed and taken risks to get where they are. Still they resent the fact that an employer may have a nice apartment or take a vacation to Punta del Este. Ironically they will make jokes about how I "work like a dog" and get little rest. They want to go home as early as possible, eat dinner and watch the Simpsons. You are 100% right about the risks of employing people en negro but employing en blanco also is a risk. If you fire someone, no matter how justified, you have to pay what can be a major indemnization. This is a very tough country in which to do business. What really drives me crazy are those expats who think that Argentina is somehow a better country than the US, as though they have some sort of moral speriority that we Americans lack. I see it as the reverse. The system in the US gives people opportunities that they don't have here.

3/27/2008 07:42:00 AM  
Anonymous Anonymous said...

I have a startup biz and can feel everyones aggrevation with all the red tape in Argentina, but rents are low, employess will work for $400 US a month and competition in certain businesses is 0. I suggest people learn how succesful people make it in Argentina and get on with it. I have managed and hired hundreds of people in the US and their is no difference. Employees will sue, contact EDD, claim workmans comp, steal, leave early, not show up and yes go home and watch the Simpsons.

Many large companies will pay a portion in blanco and the rest in negro.

2000 a month with incentives is office or sales manager, starting...but you never know because things change quickly in Argentina.

3/27/2008 06:23:00 PM  
Anonymous Anonymous said...

To the blogger who ha sthe startup business: I'd like to see how you feel in five years. I've been here a lot longer than that and it is my ARGENTINE partner who is fed up as much as or more than I am. It's not the same in the US, no matter what you say. I hear this claim time and again from recent expats. They find a way of rationalizing everything in Argentina. Strange that I see many leaving and I have no doubt that more will be leaving as it gets tougher here, once again.

3/28/2008 09:14:00 AM  
Anonymous Anonymous said...

I worked 20 years in Argentina and 15 years in the States. If you know how to keep your people motivated you will notice that employees in Argentina or in the US are almost the same.

4/08/2008 01:28:00 PM  
Blogger Don Gonzalito said...

Daniel is again oversimplifying, depicting Argentina as a place where mistrust is endemic, and closing up with the mantra that "you have to find trustul people", which in fact holds true for Argentina as much as for any other place.

Argentines do have very peculiar attitudes towards the job market, employment, and work in general.
Generally speaking, the social and political "speech horizon" in Argentina is far more removed to the left than it is in the USA.
This entails government asking employers to supplement their employees salaries for family, health care, vacation, overtime, union dues, and all those marxist things. Workers do tend to see jobs as entitlements.

The concept of telling someone who's on your payroll "you are fired" and that (barring sexual, age, or racial discrimination) being the end of it is totally alien to Argentine idiosyncracy. Since there is more legal protection for the worker, it is true that in general employers are afraid of hiring due to the difficulty of firing.
However, most employers paying anywhere decent salaries (such as Daniel's u$d 2900 example) simply circumvent this, in a totally legal way, by not taking high-salaried employees on their payroll. Instead, these highly paid employees are asked to bill for their services as independent contractors ("autónomos" in Argentina), an pay for their own retirement, health and social contributions.

For retirement, Argentines are forced to choose between a public endowment system alike to Social Security, unsustainable in the long term as it is in the USA, and a compulsory system of private accounts, called the "AFJP". They righfully dislike either option: the reparto system will pay but a fraction of what they made as active workers, and the AFJP system is basically perceived as a government-sanctioned tax in collusion with private companies, the money in those accounts inevitably evaporating in the next financial crash. No wonder Argentines tend to perceive retirement payments as money thrown away, and stick to what they know (the meager, unsustainable reparto system) while trying to ensure financial independence by other means.

But for poor work motivation in general, I agree with Daniel. Shitty salary levels explain it only partially.
There is a tendency among Argentine workers to resent the authority excercised by employers over them, and that attitude is the more generalized as you go up in the pay scale. Entrepreneurial spirit doesn't receive the automatic admiration ir does in the USA, and is instead worded and perceived as capitalistic exploitation.
Being on the employer side of the relationshio is not perceived as the fruit of that person efforts, but more as an accident due to politics, luck or lack of scruples.
On the employer side, that perception becomes often reality, and they try to exact more productivity from eployees, especially by placing more demands on their time. That "Simpsons" example might be good for public servants or heavily unionized activities, but in general, Argentine employers aren't remotely as respectful as their American counterparts regardig the employees personal time.

Nepotism exists everywhere, and the problem of to whom you entrust the register of a small business, is also universal.
Large corporations, with non-relative cashiers, serving the public directly exist in Argentina, as in everywhere else.
However, it is true that, in general, Argentina's legal system is slow and inefficient, and tends to automatically take the side of the disenfranchised, making this kind of petty larceny difficult to prosecute.

Daniel, always make the correction of a percentage of people living ouright "out of the system", and no Experian monitoring every pack bubble gums you buy. Stop describing Argentines as some sort of mistrustful mafia.

4/09/2008 05:04:00 PM  
Blogger said...

I totally agree with the "Don Gonzalito's" comment. It is a much more accurate description of the Argentineans and the Argentinean labour market. Daniel's description is just too biased and too short sighted.

Daniel's post also seems to suggest that you have no other way to hire someone other than "in negro", which is basically encouraging businesses to break the law. As “Don Gonzalito” suggests there are other alternatives such as hiring them as “consultants” and have them pay their own taxes. While this is not the solution to the problem it is a far better approach than breaking the law. I wonder people will think if someone in the US encouraged business not to pay Tax X since it was too excessive. I do agree thought that the taxes an employer has to pay in Argentina are too excessive but breaking the law is not the solution. In fact, that’s exactly the root cause of the problem. The taxes are high because in general businesses do not pay them. The government needs to crack down on businesses not paying these taxes and reduce the taxes as more business start to pay their employees what the law says. Business (and Daniel too) should lobby to reduce these taxes instead of not paying them or encourage businesses not to pay them. Whining about losing court cases makes me laugh. If you break the law don’t complain later if you get sued. Businesses need to understand that it’s THEIR responsibility to pay these taxes, not the employee’s.

Another point worth raising the general attitude of the local management towards its employees. I worked for an American company in Argentina (EDS) for 4 years. I had a mix of local and foreign managers. I was really surprised to see the difference that existed between them. The quality of the local management in Argentina is really appalling. Managers in Argentina behave like pigs and have no idea how to motivate, encourage, mentor, manage their employees. Employees therefore “absorb” this in their early employment years. When I joined the labour market in Argentina at 21 years old I was motivated, loyal and I trusted and respected the company I was working for. When I left it was a complete different story. The result of this serious mismanagement is this disloyalty, distrust, unmotivated employees Daniel talks about. I can assure you that if you hire the right people and put them under the right management and compensate them according to their work, effort and performance you will have lots of loyal, trusted and motivated employees.

As an anecdote I like to refer to the following post which highlights the extend of the local management in Argentina could go against its own employees:

The post had thousand of comments from all over the world. My blog was even blocked from inside the company. In the majority of them people complained about long working hours, bad management, no recognition of their work, etc. Soon it became clear that this issue not only exists in Argentina but in Chile, Brazil, Mexico, etc.

The Argentinean labour is very different from the US one. But IMHO the main difference is not in the employees, but in the way the employers treat their employees. Things are very different in the US and Europe and for that reason.

4/10/2008 12:51:00 PM  
Blogger Unknown said...

Got to love how americans think.

The Argentinians have the right idea, the employer needs them more then they need the employer.

Only americans would think its bad that the workers have power, only americans would think its bad that they have to pay benefits and retirement.

Yanks want to simply exploit people and treat their workers like crap, the Argentinians are smart enough to know that yanks are just crooks, good on them.

I hope they give you american business owners lots of sleepless nights.

You have all the money and the fact that the workers claim their power and demand their rights and good wages just shows how out of touch and frankly, how evil, the americans and their style of selfish, greedy, corrupt thinking really is.

5/19/2009 01:11:00 AM  
Blogger Matias said...

Generalizing (which is often not such a bad method to draw conclusions) Argentines as paleo-marxists or French is correct. Laborers not only feel but they have been reminded for 60 years now that they are entitled to an income (formalized through a blanco job). Its the Feudal aspect of this country and it was revived by Argentina mix of Mussolini and FDR: I'm talking of course of Peron, his party, and their gang.

However..... remember most Argentines are basically Europeans on the New World, trying to "hacer la America". There was a time when hard work, risk and personal responsability, along with entrepreneurship was looked upon in Argentina (before the 1930s). There ARE still remnants of that mindset among argies and many will offer their services and ambition on a good faith "en negro" contract basis. This White and Black work relationship reminds me of that old medieval saying: The White Devil is always worse than the Black one - a reference to hypocrisy.
Alexander's disgusting comment is a perfect example of the White Devil.
Remember it is -applied- principles, not genetics, nor environment, nor luck, what separates success from failure.
Self interest and mutual benefit is by definition pro-life and ethical respectively. Alexander (aka typical resented leftist) seems to consider that self interest (such as inhaling oxygen to perpetuate one's life) is somehow wrong.
But how can it be if there's no coertion involved?
I hope this gives resented collectivist around the world a lot of sleepless nights until they realize that there's no need for conflict among men. Mutual benefit is the way to go.
$ is peace. "For people to live in society, the only alternative to money is the point of a gun".

5/29/2009 02:12:00 AM  
Anonymous Anonymous said...

I disagree on the "disloyalty" comparison.
I have worked several years both in US and Argentina, and I can say it is exactly the same.
I have also work in the UK, where people are fare more loyal to their employers, but USA and Argentina are identical in that regard.

1/08/2011 08:02:00 PM  

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