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MERCOSUR: The impact of economic integration
A case studyLabour Education 1997/4 No. 109
Contents
One of the most significant characteristics of our times is the transcendental changes which are occurring in all sectors of human activity. The profound political transformations we have experienced are accompanied by the dizzy progress of science and technology, the international interdependence of economies, the economic liberalization process, transnational investment, the development of world production and information networks and sweeping changes in social structures. The globalization of economies which is entailed in these changes and the opening up of markets are being effected through various machinery and methods in which multilateral agreements and regional or subregional integration experiments play a preponderant part.
For Latin America, the process which began in March 1991 with the creation of the Common Market of the Southern Cone (Mercosur) opened the way for this economic integration mechanism to move strongly towards a more solid integration stage in which the Mercosur political and economic structures were consolidated with the aim of promoting trade and contributing to the economic and social development of the region. It must be said that in this momentum towards the consolidation of political and social structures, the trade union movement, through the Trade Unions’ Coordinating Body for the South, has played a fundamental role.
Seen in this context, the challenges are manifold and are connected not only with aspects related to the effectiveness of economic policies and macroeconomic attainments but also with systems of democratic and equitable labour relationships which encourage the participation of labour in productive activity and which respect workers’ rights and the principles enshrined in international labour standards, thus contributing to progress along the road to social justice.
The articles in this issue make an important contribution to the debate on various labour aspects of this subregional integration experiment. They consist of a number of studies which make multidisciplinary analyses of topics related to the labour market: employment, wages, international trade, labour relationships, labour inspection, social security, vocational training, trade union organization and, of course, women at work.
The authors are fellow ILO officials or external collaborators who, taken together, have extensive experience of working in Latin America, and in the Southern Cone in particular, and have seen the momentum of the integration process at close quarters. We thank them very sincerely for their collaboration.
With this issue, in which we present our first case of subregional integration, we are opening the way for subsequent issues of our quarterly publication.
Giuseppe Querenghi
Director
ILO Bureau for Workers’Activities
Víctor E. Tokman
Assistant Director- General of the ILO
and Director of the ILO Regional Office for the Americas
and Daniel Martínez Fernández
Regional Specialist in Social and Economic Integration
ILO Regional Office for the Americas
The revival of regional integration and the globalization of Latin American economies
Ever since the dawn of the 1990s, the countries in the region have been making substantial progress in their economic integration: new far- reaching multilateral agreements have been negotiated and put into effect, such as Mercosur (Common Market of the Southern Cone), Nafta (North American Free Trade Agreement) and the Group of Three; earlier agreements have been revived - the adoption of the common external tariff in the Andean Group, and the setting up of a subgroup within the Central American Common Market; and a number of bilateral trade agreements have been concluded within the framework of the ALCA( Latin American Integration Association). This network of agreements and treaties has been leading to a liberalization of regional trade at a pace and depth which are unprecedented in the integration efforts of earlier decades.
Less state intervention
The new stage of economic integration is without doubt a facet of the much broader process of structural reform in which the countries of Latin America are engaged and which in turn is part of the widespread trend towards privatization, liberalization and globalization of the world economy. To a greater or lesser degree - and also with different results - the countries in the region have reduced state intervention in the economy by removing certain regulations and privatizing activities previously carried out by the public sector. At the external level, they have shifted towards rapid integration into the global economy.
Three avenues ahead
The opening up of markets is occurring in three ways: firstly, through the unilateral lowering of tariffs and trade barriers. This has probably been the most important measure and the one exercising the greatest impact in terms of the speed and scale of the liberalization trend: ten years ago, in 1985, the average tariff within a representative group of Latin American countries was 35 per cent and the maximum in the order of 100 per cent with a wide range of tariff bands in almost all the countries considered. Only a few years later, in 1992, the average tariff in the same countries was 14 per cent and the maximum 22 per cent with a significant drop in the range of applicable levels.
In the specific cases of Argentina and Brazil, the two largest economies of Mercosur, tariffs have also been substantially lowered. In A rgentina, the highest tariff in 1989 when trade started to open up was 65 per cent and the average 39 per cent. Four years later, in 1993, the lowest tariff was only 30 per cent and the average 15 per cent. In Brazil, the highest tariff in 1988 when the opening up process began was 105 per cent and the average 51 per cent; in 1993, they had dropped to 35 per cent and 14 per cent respectively. In the same way, in 1993 there were only three tariff bands in Argentina and seven in Brazil compared with 29 five years before.
Secondly, the countries of Latin America have unanimously endorsed the results of the GATT (General Agreement on Trade and Tariffs) negotiations and many have already ratified their membership in the new World Trade Organization (WTO). This step implies a commitment to engage in a freer form of trade, one with less barriers, and greater access to world markets.
The third method is to step up the rate of regional integration which has been taking shape via the many multilateral and bilateral agreements to which reference has been made.
Part of a development strategy
Several factors have contributed favourably to the regional integration agreements and bilateral pacts. Firstly, there is now greater homogeneity between the countries: almost all have democratic regimes and their economic policies obey similar principles. Secondly, the region has moved towards a certain macroeconomic equilibrium which is enabling the countries to deal not only with the adjustment process but to address medium and long-term growth. Within this context, integration is seen as part of a strategy to speed up and sustain development based on efficient and competitive production and the increase of non-traditional exports to broader markets. The process has also been influenced by the global trend towards the formation of blocs, which at the political level was supported and strengthened in the region by the Initiative of the Americas.
Time frames and courses of action
The integration methods which have been adopted are known for their flexibility: the intention is to ensure that the different schemes converge with each subregion and each country following time frames and means of application which are most appropriate for them to achieve degrees of openness and complementarity beyond the levels established within the GATT-WTO multilateral framework.
The regional market most dynamic for manufactured products
The opening up of markets, the globalization of economies and the extent to which integration has been taking from and substance have together operated in such a way that increased exports have become a key factor in spearheading growth in Latin America. Within the region as a whole, exports have increased faster than production for internal markets. Within the export market, the fastest growing component between 1990 and 1994 was that of intra-regional exports. This is true of all schemes and is particularly significant in Mercosur (table 1), where the reciprocal liberalization of markets has certainly had an influence. Finally, the export of manufactures has grown considerably, resulting in a marked increase in the sector’s participation in total Latin American exports (table 2). Available data indicate that in several countries the regional market has been the most dynamic in terms of manufactured goods, a development which has stimulated interest in speeding up regional integration.
Table 1. Mercosur: Intraregional and total exports, 1990- 95
(Billions of dollars and percentage share)
Mercosur
Intraregional
World
Mercosur/World (%)
|
1990
4.1
46.4
8.9
|
1991
5.1
45.9
11.1
|
1992
7.2
50.5
14.3
|
1993
10.0
54.2
18.5
|
1994
12.0
62.1
19.3
|
1995
14.4
70.3
20.5
|
Source: ECLAC, based on official data.
Table 2. Exports of manufactured goods
(Percentage of FOB value in total exports of goods)
Argentina
Brazil
Paraguay
Uruguay
|
1980
23.1
37.0
9.1
38.2
|
1985
20.8
43.7
5.5
35.0
|
1990
29.1
51.9
6.9
38.9
|
1992
26.3
56.9
2.8
40.8
|
1994
32.8
54.1
9.8
43.0
|
1995
33.9
53.1
5.8
38.5
|
Source: ECLAC: Statistical Yearbook, 1996.
The effects of globalization and economic integrationon the labour situation
Changes in job distribution
The opening up of the economy to international competition has important effects on labour. Firstly, a change in the composition and distribution of jobs is to be expected with an increase in the percentage of the workforce employed in the production of exports and goods which are competitive with imports. Employment drops in some activities which are unable to cope with international competition or which introduce modern and competitive technologies which are less labour intensive. In other activities employment increases as a result of additional investments and the launching of new areas of production. The net effect in each country depends in the medium term on its possibilities to create favourable conditions for investment and the adoption of active policies which contribute to the training and productive redeployment of the workforce.
Poor quality jobs
Even though exports in the region have increased more rapidly than any other productive activity, as noted above, Latin American experience shows that the results in terms of employment have not been sufficiently dynamic: the immediate effect was a drop in the rhythm of growth in employment and the change in the composition of jobs has rather tended towards a greater share of low quality jobs, underemployment and a deterioration in real wages. Between 1990 and 1996, four out of every five new jobs were created in the informal sector which is not generally connected to exports or the production of tradeables.
1
Only recent progress
In assessing this chain of events, various factors must be taken into account: on the one hand, pro g ress towards integration and the reduction of tariffs and non- tariff restrictions is still very recent in most of the countries; on the other hand, the liberalizing policies were generally adopted together with macroeconomic adjustment measures which proved to have a negative effect on activity and employment. Finally, they coincided with a time of marked economic recession in the developed countries during the early years of the current decade which further detracted from the positive effects of the liberalization policies.
It might well be expected that as trade increases as a result of integration and the shift of the Latin American countries into the global economy, the net positive effects on employment tend to increase; however, the changes in the levels and composition of jobs brought about by an export strategy may take shape slowly and prove costly. There is thus a need to adopt policies to facilitate the re-assignation of the factors of production in general, and the workforce in particular, and to reduce the social costs of the transition period.
Weakest social groups in a changing market
A second effect of the liberalization of trade concerns labour relations and the functioning of the labour market. In the new scenario there has been a profound change in the conditions prevailing in the economies protected from international competition. There are now fewer levels of intervention in the administration of the labour market and therefore fewer opportunities for acting on behalf of the weakest social groups; international competition fixes the boundaries for negotiations and agreements which are subject to increases in productivity. Conditions are “harsher”, with employment and wages depending on the capacity to compete efficiently.
As an inherent part of the recent progress recorded in Latin America, the new labour relations context has led to the emergence of two different trends: firstly, the constant growth of the informal sector with a greater percentage of workers with precarious employment contracts and new forms of subcontracting between enterprises. By means of this “de facto flexibilization”, enterprises have managed to increase their capacity to adjust to an uncertain, changing and competitive market, but this has also been to the detriment of the right of workers to stable, secure and wellpaid jobs.
Positive trend: search for dialogue and social consensus
A second trend is towards the search for new methods of labour relations which recognize the current conditions prevailing in the economy and on the labour market but which at the same time protect workers’ rights, encourage their commitment to productive activity and contribute to creating the climate of social and labour stability required by investment and economic development. The progress which has been achieved in several countries of the region in the pursuit of dialogue and social consensus, the inclusion of new topics in collective bargaining and the training and further training of the social actors for carrying out new functions are the main expressions of this positive trend.
Labour issues in Mercosur
Most of the analyses made in the previous section on the consequences of the opening up and broadening of the economic area in the labour market are applicable to the Mercosur countries. This section will present some guidelines for developing the policy of the Mercosur countries re g a rding labour and social issues within a community framework.
A policy for social justice
The Treaty of Asunción, which gave life to Mercosur, contains essentially provisions referring to the establishment of the extended market but does not include any standards respecting workers; however, almost from the beginning of the negotiations, the countries were fully aware of the need to bring social and labour aspects within the ambit of negotiations to give effect to the objective of “speeding up economic development with social justice”. Sub- working group 11 was established for this purpose. It set up eight committees to examine labour relations, employment and migration issues, vocational training, health and safety at work, social insurance and labour costs in specific sectors and international labour standards. The committees focused on the comparative study of the existing situation and exploring harmonization possibilities.
Subsequently, in 1994, the Additional Protocol to the Treaty of Asunción was signed in Ouro Preto, Brazil. It established the Social and Economic Advisory Forum as the representative body of the social and economic sectors, made up of an equal number of representatives of the States Parties. It carries an advisory function and will issue recommendations to the Common Market Group, the executive body of Mercosur.
In 1995 the Common Market Group decided to set up working subgroups and ad hoc groups. One of the subgroups, No. 10, is responsible for labour issues, employment and social security. This subgroup set up three committees in 1996: one deals with labour relations questions; the second with employment, migration issues, skills development and vocational training; and the third is responsible for occupational health and safety, labour inspection and social security.
The following sections examine some of the themes of special relevance to Mercosur’s social and labour policy.
Economic and social stability
Mercosur provides opportunities for increasing trade, production and employment in the participating countries; however, such opportunities neither automatically become realities nor are they necessarily the same in terms of countries or production sectors. It is not enough to broaden the market; additional conditions are also required to stimulate the development of new investments. It is important for Mercosur as a whole that these conditions are met, which implies various areas for joint action.
A long history of imbalances
One possible area falls within the scope of macroeconomic stability. The experiences of Mexico in 1994- 95, Argentina in 1995 and Brazil at present clearly show the negative effects which imbalances in one of the countries participating in an integration process tend to have on trade flows, investment, production and employment.
In the case of the Mercosur countries there is a long history of major macroeconomic imbalances. Table 3 shows inflation rates and real variations in exchange rates which have, particularly in the two largest Mercosur countries, not only been considerable but frequently conflicting in their signals, altering the conditions governing prices and competitiveness and may affect investments and trade flows in the common market.
The need to avoid the distortions and uncertainty resulting from these imbalances is an important sphere for community action through consultation and harmonization (and even intervention) mechanisms, which allow fluctuations to be kept within manageable limits and offer a framework of stability which encourages investments.
Table 3. Mercosur: Variations in the consumer price index and effective real exchange rate of exports
Argentina
Consumer price index
Real exchange rate
Brazil
Consumer price index
Real exchange rate
Paraguay
Consumer price index
Real exchange rate
Uruguay
Consumer price index
Real exchange rate
|
1987
174.8
22.2
394.6
n.d.
32.0
8.0
57.3
3.2
|
1988
387.7
6.0
2993.3
-8.7
16.9
3.7
69.0
7.6
|
1989
4923.3
10.3
1863.6
-24.3
28.5
5.6
89.2
-0.5
|
1990
1343.9
-30.1
1584.6
-7.7
44.1
-1.9
129.0
n.d.
|
1991
84.0
-16.7
475.8
18.5
11.8
-13.1
81.3
-11.9
|
1992
17.5
-7.0
1149.1
6.8
17.8
4.8
59.0
-4.8
|
1993
7.4
-4.0
2489.1
-12.0
20.4
2.7
52.9
-11.1
|
1994
3.9
2.6
929.3
-13.6
18.3
1.0
44.1
-2.1
|
1995
1.6
n.d.
22.0
n.d.
10.5
n.d.
35.4
n.d.
|
1996
0.4
n.d.
10.6
n.d.
8.8
n.d.
25.5
n.d.
|
n.d. = no data
Source: ECLAC
Agreements guarantee investments
A second area refers to the transnational enterprises which are established in the Mercosur countries. In recent years, there has been a growing transnationalization of Latin American enterprises made up of mixed - regional and from outside the region - or exclusively Latin American capital. This is a relatively new process, the continuation and intensification of which in the future may contribute substantially to promoting integration and the development of new investment. In order to stimulate this trend there is a need for community action to secure investment guarantee agreements among the countries to ensure stability in the treatment applied and complement the liberalization of trade and the harmonization of policies.
Shifts of capital and staff
A transnational enterprise which has invested in Mercosur not only implies the movement of capital but the transfer of executives and to a lesser extent specialized staff who become important actors in the integration process. This introduces a fresh issue for community consideration involving a more international vision of the labour market and one which may need to take into account a whole host of questions including those of wages and conditions of work.
How workers see the process
Finally, a third area of action falls within the sphere of social stability which to a large extent depends on whether or not the workers see the development process as a fair one. A socially just Mercosur will be achieved with acceptable wages, appropriate conditions of work and an even level of collective bargaining. Forms of community action which strengthen national policies through cooperation funds and machinery are necessary to compensate and reintegrate displaced workers and to generate new sources of employment.
Employment, unemployment and wages
How labour supply has been progressing in Mercosur (1990- 96)
Over the last seven years (and even before) the population of the Mercosur countries has grown at a relatively moderate rate, between 0.6 per cent a year in Uruguay and 1.7 per cent in Brazil. An exception was Paraguay where the rate reached 2.7 per cent. For the subregion as a whole, the annual rate of population growth is 1.6 per cent, a tenth less than that of Latin America as a whole.
However, the non-agricultural economically active population of the member countries of the Agreement has risen at relatively high annual rates which fluctuate between 1.9 per cent in Uruguay and 5.6 per cent in Paraguay, with intermediate rates in Argentina (3.2 per cent) and Brazil (2.7 per cent). The economically active population in the subregion as a whole has increased by 2.8 per cent a year, almost half a percentage point less than that of Latin America.
The increase in the economically active population at rates which are significantly higher than those of the population is due not only to the high rates of population growth over the last 20 years but to a significant increase in the urban participation ratios, particularly since 1993. Thus in Argentina, the ratio was 63.9 per cent in 1990 and rose to 66.5 per cent in 1993, to 68.5 per cent in 1995 and 67.4 per cent in 1996. The situation in Paraguay and Uruguay has progressed along similar lines. In the first case, the ratio was almost 61 per cent in 1990; it rose to almost 63 per cent in 1993 and to 70.5 per cent in 1995. In Uruguay, it increased from almost 60 per cent in 1990 to almost 61 per cent in 1994 and to 62 per cent in 1996. Only in Brazil does the participation ratio show a downward trend, falling from 63.8 per cent in 1990 to 58.7 per cent in 1993 and reverting to around 60 per cent in 1996.
How labour demand has been progressing in Mercosur (1990- 96)
Over the last seven years, the demand for non- agricultural labour by the different sectors of the economy increased at rates which were below those of supply in the case of Argentina (1.3 per cent annual growth in employment compared with 3.2 per cent increase in the economically active population), Brazil (2.5 per cent and 2.7 per cent respectively) and Uruguay (1.2 per cent and 1.9 per cent). The opposite occurred in Paraguay (5.8 per cent and 5.6 per cent). Given the greater population of Argentina and Brazil, labour supply and demand in both countries have been progressing in such a way that in Mercosur as a whole non-agricultural employment rose at a rate (2.4 per cent per year) which was below that of the economically active population (2.8 per cent), a rate which is similar to that of Latin America as a whole (table 4).
Although the increase in jobs has been insufficient to meet the growth in labour supply, it has been below that of the GDP in all cases with the exception of Paraguay (table 2). Thus, average labour productivity has increased significantly in Argentina (3.5 per cent per year) and Uruguay (2.6 per cent) and less so in Brazil (0.1 per cent per year) and in the subregion (1.1 per cent). Only in Paraguay has there been a major drop in productivity (-3.0 per cent per year).
Table 4. Population, production, employment and productivity
Annual growth rates (1990 - 96)
Argentina
Brazil
Paraguay
Uruguay
Mercosur
Latin America
|
Population
1.2
1.7
2.7
0.6
1.6
1.8
|
GDP
4.8
2.6
2.8
3.8
3.5
3.1
|
Per capita GDP
3.3
1.2
0.2
3.2
3.0
1.4
|
EAP*
3.2
2.7
5.6
1.9
2.8
3.2
|
Employed persons*
1.3
2.5
5.8
1.2
2.4
2.8
|
Productivity*
3.5
0.1
-3.0
2.6
1.1
0.3
|
*Does not include the agricultural sector
Source: Table prepared by the ILO on the basis of official data from the countries.
Most new jobs in informal sector
But although the shortfall in jobs is already a serious problem, it is further compounded by the fact that the largest proportion of new workplaces (approximately 97 per cent) were in low productivity activities in the informal sector. This development accounts for the phenomenon that in the Mercosur countries as a whole the informal sector, which in 1990 generated 51 per cent of the total number of workplaces, now absorbs just over 56 per cent. This increase in the informal sector is high in Argentina, Brazil and Paraguay, and very small in Uruguay. Thus the new workplaces required by the Mercosur economy have not only been insufficient in numbers but, in general, have also been of poor quality, since of the approximately 8.2 million new jobs created in the period 1990-96, just over 7.9 million are in the informal sector and only 225,000 in the formal sector.
Private sector not dynamic
What is the cause of this situation in the modern sector? In the first place, it is due to the widespread loss of jobs in the public sector wheresome 408,000 jobs were cut during the period under review. The second explanation is the lack of drive in job creation in the modern private sector which in the same period created only 633,000 net jobs.
Privatized and modernized
The reasons for the retrenchment in the public sector are well known: on the one hand, many public enterprises have been privatized; and on the other, in central government and in autonomous public institutions, jobs have been cut both as a result of the policy to correct the public deficit and the processes involved in modernizing institutions.
Different sectors behave differently
Furthermore, the limited job creation capacity of the public sector is due to clear differences in behaviour among the sectors. Whereas in commerce, services and non traditional exports there has been an increase in labour demand, in those sectors which produce tradeable goods there has been a reduction in employment as part of the strategy to increase productivity and competitiveness to meet the new conditions resulting from the opening up of trade.
Thus the available data on the evolution of employment in the manufacturing sector show that during the period under review, the level fell both in Argentina (-3.2 per cent per year) and in Brazil (-4.6 per cent). The reduction was g reater than that of the number of hours worked (-2.4 per cent and -3.6 per cent respectively), which shows that productivity gains (6.6 per cent and 6.2 per cent per year respectively) were achieved to a large extent with fewer persons working more time.
Young workers and less labour intensive technology
Three arguments are generally used to explain why industrialists had to cut jobs as a means of increasing productivity and why, once the sector had adapted to the new conditions created by the opening up of trade and achieved high growth rates, labour demand is so low: firstly, the oversizing of the workforce available to enterprises during the period when national industry was protected - once this protection was over, enterprises were forced to rationalize the number of their workers; secondly, enterprises opted to dismiss workers with many years of seniority and incurring high labour costs and recruit (fewer) young workers with less experience but with a higher level of professional skills and at a relatively lower cost; and finally, the new technologies acquired by enterprises to meet external competition are less labour intensive, meaning that the production employment elasticities are now significantly lower than before the opening up process.
All these arguments may well be valid. Whether or not there was over-sizing of the workforce, it cannot be contested that many enterprises are at present producing more with fewer workers and with a restructured organization of work processes.
The decisive factor: product behaviour
It is also true that the recruitment of workers on a fixed-term or part-time basis has increased as a result of the legal incentives granted in recent years to promote these kinds of contract - incentives which include wage restrictions in some cases and exemption from specific social contributions in others. The results of a study being carried out by the ILO Regional Office on the subject show, for example, that in April 1997 in Argentina, approximately 7 per cent of the total employment in urban private enterprises used this kind of contract, a percentage which it is estimated was only 4 per cent in 1995 and 2 per cent in 1990. In Colombia, temporary employees accounted for 15.7 per cent of total employees in 1990 and 18 per cent in 1996. However, this increase in fixed-term recruitment, in addition to being lower than was expected by those who designed this policy in their respective countries, has not always led to an increase in the overall number of jobs which were already in place, but in many cases to a replacement of workers engaged according to different contractual terms. The net result has been, as noted earlier, a very modest increase in total employment in the tradeables sectors. This situation shows that over the recent period, and within the framework of policies to reduce labour costs, employment growth in these sectors has relied much more on product behaviour than on efforts to reduce labour costs.
2
New technology invested in goods and services
As regards technological modernization, it clearly represents a savings in capital which can be used to make new investments and thus generate employment so that the net effect of modernization is not necessarily a loss of aggregate employment. However, such investment may well be oriented to sectors which are less affected by the opening up process (i.e. those which produce goods and non-tradeable services) while in the manufacturing sector technological modernization does result in a net loss of jobs.
Unemployment in Mercosur
The increase in the labour supply at rates exceeding those of demand resulted in a rise in unemployment in Argentina, Brazil and Uruguay so that despite the drop recorded in Paraguay, the unemployment rate in Mercosur as a whole rose from 5.1 per cent in 1990 to 8.8 per cent in 1996 (table 5).
Table 5. Urban open employment (percentages)
Total
Argentina
Brazil
Paraguay
Uruguay
Mercosur*
Young persons
Argentina (15-24)
Brazil (18-24)
Paraguay (15-19)
Uruguay (14-24)
Women
Argentina
Brazil
Paraguay
Uruguay
Cities
Buenos Aires
Sáo Paulo
Ascunción
Montevideo
|
1990
7.5
4.3
6.6
9.2
5.1
15.2
-
18.4
26.6
7.3
-
6.5
11.8
7.3
4.6
6.6
9.2
|
1991
6.5
4.8
5.1
8.9
5.5
12.3
9.1
9.0
25.0
6.2
4.9
4.7
11.3
5.8
5.5
5.1
8.9
|
1992
7.0
4.9
5.3
9.0
5.6
13.0
11.2
14.1
24.4
7.1
6.2
3.8
11.9
6.7
5.4
5.3
9.0
|
1993
9.6
5.4
5.1
8.4
6.6
-
10.3
9.8
23.3
12.7
5.6
4.5
11.0
10.1
5.8
5.1
8.4
|
1994
11.5
5.1
4.1
9.2
7.0
21.2
9.6
12.3
25.5
14.5
5.3
3.7
12.0
4.6
6.6
9.2
|
1995
17.5
4.6
5.6
10.8
7.9
30.1
9.3
10.8
26.6
22.3
4.9
5.7
13.7
18.8
5.2
5.6
10.8
|
1996
17.3
5.4
5.5
12.4
8.8
29.9
11.2
29.4
-
6.5
-
15.5
-
-
-
-
|
*Weighted average.
Source: Table prepared by the ILO on the basis of official data from the countries.
Young persons, women and urban dwellers
Unemployment affects mainly young persons and women in the large cities. Thus youth unemployment is twice as high as the average urban unemployment rate (Argentina and Brazil) and sometimes three times as high in some years (Paraguay and Uruguay). The unemployment rate of women is between 1.5 and 2.0 times higher than the national average, except in Paraguay where it is lower, possibly because of the lower participation of women in the labour market. As regards urban unemployment, with the exception of Asunción,
3
the other capitals of the Mercosur countries the unemployment rate is slightly higher than the national urban unemployment rate.
As a result, the average unemployed person in the region is a young person, probably more often than not a woman and living in a large city.
Low income families
One of the well-known problems of unemployment which, although familiar, is still worthy of mention, is that it affects mainly low-income famil ies afflicted by poverty. ECLAC figures
4
show that in 1992 the unemployment rate of the population in the first fifth of the income distribution was 18.6 per cent in Argentina (the urban national average was 7.0 per cent in that year), around 12 per cent in Brazil (4.9 per cent at the national level), 13.5 per cent in Paraguay (5.3 per cent at the national level) and 15.9 per cent in Uruguay (9.0 per cent at the national level).
Wages
Real wages over the period 1990-94 show some signs of recovery both as regards minimum wages and industrial wages (table 6).
Slight increase in minimum wage
Minimum wages rose significantly in Argentina (11.8 per cent per year) and Brazil (3.7 per cent). However, in these two countries they continue to fluctuate between 20 and 30 per cent lower than the level reached in 1980. In Paraguay and Uruguay, the real minimum wage fell by 2 per cent and 8 per cent per year respectively. Despite the reduction noted in Paraguay, the real minimum wage at present is 17 per cent higher than that of 1980 although in Uruguay it is now less than half the level recorded in 1980. In the subregion as a whole, the weighted minimum wage shows a slight increase of 1.5 per cent per year.
Average wages in the industrial sector remained constant in Argentina (where in 1996 the sectoral average wage was equivalent to only 75 per cent of the 1980 wage) and in Paraguay. The figure rose sharply in Brazil (5.1 per cent per year) and very slightly (0.6 per cent per year) in Uruguay. For the subregion as a whole, the weighted industrial average wage increased by 4.4 per cent a year, no doubt due to the increase registered in Brazil.
In conclusion, the behaviour of the labour market in the Mercosur countries during the period 1990-96 was characterized by the following developments:
- an even greater increase in the labour supply, to a large extent, as a result of the growth in the participation ratio, particularly among women;
- an insufficient generation of jobs which has led to a higher level of unemployment, particularly among young persons, women and city dwellers;
- a concentration of the new workplaces in the informal sector as a result both of the reduction in public employment and the scant labour demand of modern private enterprise;
- a growth in the number of employees recruited for fixed periods of time which is greater than that of workers recruited on contracts of indefinite duration, modifying the composition of salaried employment;
- a recuperation of real wages in many countries but with growth rates which have been lower than those of productivity so that gains in competitiveness have been achieved in the most representative tradeables sectors.
Table 6. Real wages (1980 = 100)
Minimum
Argentina
Brazil
Paraguay
Uruguay
Mercosur
Industrial
Argentina
Brazil
Paraguay
Uruguay
Mercosur
|
1990
40.2
55.4
132.1
68.8
74.0
75.0
96.7
102.4
110.8
94.2
|
1991
52.9
64.8
125.7
62.9
77.2
76.0
90.9
97.7
115.8
90.4
|
1992
45.3
56.5
114.7
60.0
72.0
77.0
101.7
93.8
117.5
99.0
|
1993
70.0
63.9
110.2
51.5
76.6
75.7
108.7
93.6
123.8
104.5
|
1994
81.1
60.8
113.2
46.0
78.4
76.5
113.4
95.4
122.9
108.6
|
1995
78.4
67.1
112.8
42.9
79.2
75.6
124.2
100.8
115.5
116.7
|
1996
78.3
68.9
117.1
41.7
81.0
75.5
130.4
100.7
114.9
121.9
|
Source: Table prepared by the ILO on the basis of official data from the countries
Labour costs and competitiveness
Within the Mercosur context, the growth of economic activity and employment depend in the medium term on the capacity of each country to meet the challenge of competitiveness both within its own frontiers and from the other countries of the world.
Competitiveness is a result of the relative costs of a set of factors and their productivity. Labour costs play a part, along with others such as the costs of energy, raw materials, technology, transport and work capital.
In what way do labour costs affect the competitiveness of the Mercosur countries?
Compare productivity and labour costs
In general, the available data indicate that wages tend to be higher in Argentina and substantially lower in Paraguay;
5
but in order to evaluate the effect on competitiveness it is not sufficient to take into account labour costs alone: they must be compared with productivity.
Table 7, based on recent research by the ILO,
6
shows the hourly labour costs in the manufacturing industry of various countries including Argentina, Brazil and Uruguay, and their relationship with productivity per hour of work.
Among the Mercosur countries for which information was available, Argentina has much higher labour costs, but the relationship changes when account is taken of the unit of production. The higher productivity of an hour of work in Argentina reverses the relationship with regard to Brazil and reduces the difference with respect to Uruguay (table 7).
Major productivity differentials with respect to the United States
These are overall data and do not reflect the situation regarding competitiveness in specific branches or in other sectors. However, other studies have been carried out for specific industries. Research on four sectors - iron and steel, foodstuffs, banking and telecommunications - which cover, among other countries from the region, Argentina and Brazil, corroborates the major productivity differentials with respect to the United States. Of the two Mercosur countries, in three of the four sectors, Brazil records higher productivity (table 8).
7
Both the overall data and those referring to specific sectors are indicators which show that the problems of competitiveness do not depend mainly on labour costs but are more influenced by the levels of productivity and other factors. Among them, there is no doubt that the delay in the kind of change undertaken in most Mercosur countries has affected competitiveness to a greater extent than the evolution of labour costs.
Table 7. Labour costs and productivity in industry, 1995 (US dollars)
United States
Rep. of Korea
Germany
Argentina
Brazil
Uruguay (1992)
|
Labour cost per hour
17.30
5.60
27.50
5.96
4.65
2.37
|
Productivity per hour
46.50
22.40
n.d.
24.00
15.10
12.50
|
Labour cost per production unit
0.37
0.25
n.d.
0.25
0.31
0.19
|
n.d. = no data.
Source: table prepared by the ILO on the basis of official statistics.
Table 8. Labour productivity (United States 1992 = 100)
Argentina
Brazil
Latin America
2
|
Iron and Steel
30
44
37
|
Foodstuffs
52
29
34
|
Banking
19
31
29
|
Telecommunications
1
55
59
80
|
1
No adjustment made for quality difference.
2
Weighted by jobs.
Source: McKinsey Global Institute. 1994.
Sectoral agreements foreseen
Forms of community action aimed at defining and applying a strategy to enhance productivity and competitiveness could be included in the sectoral agreements for which provision is made in the Treaty of Asunción. In the same way, community action could well stimulate and support the export development of micro-enterprises which in the four countries account for a substantial part of the labour force.
Training, vocational training and retraining
In the Mercosur context, skills development and the vocational training of the labour force are key variables in several different ways: in the first place, they are a necessary condition for developing Mercosur’s potential, launching new production, creating jobs and enhancing the efficiency and competitiveness of existing production; secondly, training is a means of facilitating the productive re-assignment of workers displaced as a result of changes in the composition and structure of production following the broadening of the market and the introduction of new technologies; and thirdly, a better trained and more productive labour force makes it possible to increase remuneration and improve conditions of work in an effort to achieve not only equitable development but social justice.
Training as part of employment policy
In recent years, the vocational training systems in the Mercosur countries have embarked upon an intense process of reform.
8
In Argentina, the Employment Act made vocational training part of employment policy under the responsibility of the Ministry of Labour. A National Employment Fund was established from which funds are allocated for the training and retraining of workers.
In Brazil, enterprises have taken over the main responsibility for the formulation and application of vocational training programmes. The main institutions are the SENAI (National Service for Industry Training), the SENAC (National Service for Commercial Training ) and the SENAR (National Service for Rural Training) which are linked to industrial, commercial and rural production respectively. The modernization of these institutions is designed to provide competitive technological development services, advisory services, information and specialized production, enabling the institutions to have closer contact with enterprises and define their needs more precisely in terms of skilled labour. The Ministry of Labour has sought to establish a link between training, unemployment insurance and job placement.
The dual German model
In Paraguay, extra- curricular vocational training is the responsibility of the National Vocational Promotion Service which is a semiautonomous body attached to the Ministry of Labour. It has aimed its efforts at providing more and more decentralized and flexible services, enabling it to conclude agreements with private bodies. Special importance has been given to dual training in line with the German model in industry and commerce.
In Uruguay skills development and vocational training are essentially public functions linked to education. The establishment of the Vocational Training Council and the functioning of NGOs have brought vocational training closer to the needs of enterprises and the demand from sectors not covered by public institutions. The Labour Retraining Fund has been established to finance the Labour Retraining Programme which is aimed at adapting training to the requirements of production reconversion and economic integration. Both the Fund and the Programme are administered on a tripartite basis. Uruguay is the only Mercosur country which has an occupational certification procedure which recognizes the skills and abilities acquired by the worker irrespective of the origin of the apprenticeship.
9
Retraining courses are given to recipients of unemployment benefit.
Bridging the gap between formal schooling and work
Although there continue to be different problems in terms of human resources, many are common to the different countries and the requirements posed by the new market conditions are more or less similar. There are still areas with high rates of illiteracy in Brazil and Paraguay, and in the four countries a substantial effort will have to be made to improve the quality of education at all levels. There is a common need to increase the link between the educational system and work by addressing two main questions: first, the education system must improve its capacity to impart basic skills and so facilitate the integration of graduates into production activities; and second, the educational system must provide students with a minimum degree of practical training and apprenticeship. The labour training systems require further decentralization and more involvement of enterprises and workers in the development of dual systems. There is a need to improve the specialized training centres as an alternative to the universities and to organize new specialized courses of short duration.
Skills training for young persons
Another common problem in the four countries revolves around the integration of young persons into the labour market, a problem closely linked to the issue of skills development. The design and application of employment and labour training programmes which take account of the heterogeneous situations and aspirations of young people are concerns shared by all countries in the area. Argentina and Brazil have even established programmes of this kind already and Uruguay will do so very shortly.
A high percentage of the labour force in Mercosur is employed in informal activities and urban and rural micro-enterprises. There is a need for a special organization where special status would be accorded to local and regional institutions to provide training to these sectors and enable them to participate fully in the restructuring of production.
Pool national training efforts
A human resource and training policy in Mercosur would enable national efforts in these spheres to be mutually strengthened. The construction of such a policy could begin by increasing collaboration in various spheres: between public and private training institutions; between universities and production sectors and enterprises; and between workers’ and employers’ federations. A clear form of cooperation would be the exchange of information which would allow successful national experiments to be adopted in other countries. Progress could be made in the exchange of curricular content and organization systems, the establishment of scholarship programmes and student-teacher exchange agreements and the development of joint projects.
A system for the recognition of certificates of skills and studies and professional titles is a prior condition for the circulation of factors of production established by the Mercosur treaty.
Social security
10
Independently of the globalization and integration process, the social security schemes in the Mercosur countries are now undergoing a period of examination and reform. Argentina, Brazil and Uruguay are among the countries of Latin America which first adopted social security schemes and which have achieved the greatest population coverage. However, they are also among those countries with the highest social security deficit: problems resulting from marked increases in expenditure, in part because of greater life expectancy, along with reductions in real incomes during long periods of inflation and difficulties in the administration of the funds, have led them to engage in reforms or undertake studies and projects to redress the situation. Mercosur is an additional factor to be taken into consideration with a view to the adoption of common criteria.
Same levels of benefits
One of the first issues at hand is the need to strive to reduce differences in the amounts and sources of financing and levels of benefits. To bring social security costs closer together is important because of the effect they may have on the total costs of labour and on competitiveness. Even levels of benefits have a social objective of reducing inequalities in the conditions of life and work.
Available data on the costs of social security and other benefits as a percentage of wages show that, on average in Mercosur countries, they account for approximately 68 per cent of wages paid and 84 per cent of the net wages received by the worker. In Brazil and Uruguay, the costs are more or less equal to the average, whereas in Argentina they are 12 per cent higher and in Paraguay 13 per cent lower.
11
Not same levels
As can be seen, these costs are an important percentage of the total costs of labour and there are significant differences between the countries. However, as noted earlier, their real effect on competitiveness seems to be limited. Therefore the objective, from the economic point of view is not to standardize conditions between countries.
As regards benefits, once again there is no standardization criterion. A gradual process towards fairly even levels could be based on the establishment of minimum conditions of social protection which at least guarantee the average level achieved and prevent any attempts to increase competitiveness to the detriment of social security; above the agreed levels, countries could establish whatever schemes they deem appropriate.
Migrant workers’ acquired rights
A second issue is the fine-tuning of agreements to enable migrant workers to benefit, in their country of residence, from the rights acquired or in the course of acquisition, and to guarantee them their benefits. The basic principle in this instance is that of equal treatment between nationals and non-nationals. It must be remembered that some of the migration flows are illegal and there foregenerally excluded from the protection of labour legislation, with neither access to social security nor membership in trade union organizations. This is a problem which requires community attention for the establishment of mechanisms and forms of regularization. In this respect Sub-group No. 10 adopted a “Multilateral Social Security Agreement of the Southern Common Market”. This Agreement, which will be presented to the Common Market Group, establishes as a general standard that the applicable legislation (as regards social security) shall be that of the place in which the worker’s activity is carried out”. (article 4.)
The Administrative Agreement mentioned in the Multilateral Social Security Agreement establishes (article 6) that for the granting of contributory benefits in respect of age, old age, disability or death, the following rules shall be observed:
each Contracting State shall take into account the periods completed and registered by the other State, provided that they do not overlap, as periods of insurance or contribution, in accordance with its own legislation;
the periods of insurance or contribution completed before the entry into force of this Agreement shall take into account only when the worker has periods of work to be completed from that date;
the period completed in a Contracting State, under a voluntary insurance scheme, shall only be taken into consideration when it is not simultaneous with a period of compulsory insurance or contribution completed in another State.
If ratified, the Agreement would offer extensive scope for cooperation among the national bodies responsible for social security. This is particularly the case as regards the establishment of common objectives, the definition of applicable schemes, administrative matters, actuarial calculations, placement and administration of special funds, and the means for achieving the establishment of universal social protection.
Labour mobility
Mercosur implies the free circulation of factors of production, but the Treaty of Asunción and the Ouro Preto Protocol do not establish any procedures or time frames to achieve it.
Migrations between Mercosur countries have historically been important and it is likely that they will continue to be so in the Common Market. Argentina and Brazil are the main receiving countries of migration flows: at the beginning of the last decade, most migrants to Argentina came from Latin America and half of these were Paraguayan (35 per cent) and Uruguayan (15 per cent).
12
Early agreement to remove restrictions unlikely
Given the labour market situation in the four countries which all have high rates of underutilization of their labour forces, it seems unlikely that an early agreement will be reached to remove restrictions on the movement of workers. In Subgroup No. 11 (Committee 3) progress has been made on the exchange of information and preference given to the criterion of moving forward on a gradual basis. The current Subgroup 10 continues to deal with the subject through one of the three committees which have been set up.
A proposal in favour of successive stages suggests, as a first stage, granting workers originating from other Mercosur countries a preferential right to take up jobs for which no national workers are available, after a specified interval. At a second stage provision could be made for free access as a general rule except in cases of protection for sectors or regions which have a surplus of national labour. At a third stage, there would be full freedom of circulation which, in the case of dependent workers, would be subject to the condition that they have a contract of employment prior to their transfer.
13
Free movement across frontiers includes that of settling and engaging in profit-making activities in any part of the Mercosur territory; the free provision of services from one country to an individual or person domiciled in another country; the recognition of social security rights and the same treatment as that provided to nationals; and the recognition of occupational diplomas and skills.
Standards and labour legislation
Finally, a few remarks follow on international labour standards and labour legislation.
Ground for community cooperation
As noted earlier, one of the committees set up by the now defunct Working subgroup No. 11 selected a set of ILO Conventions whose ratification by all Mercosur countries would provide a common minimum legal base. In addition to ratification there is a clear general interest in each of the Mercosur countries to ensure proper application of these standards, which itself constitutes a sphere for community cooperation. However, the current Subgroup No. 10 has abandoned, at least temporarily, the examination of the subject of international labour standards and is focusing its attention, as noted earlier, on employment, migration, job skills and vocational training, health and safety at the workplace, inspection and social security. Even so, the construction of a common legal basis as regards labour standards allows for various options which should be explored: one possibility is for countries to decide simply to rely on the mechanisms established by the ILO for monitoring the application of the standards in each of them in accordance with general procedures. A disadvantage of this option is the periodic nature of the observations, which fluctuates between two and five years according to the Convention concerned. A second option might consist of the application of specific Mercosur procedures to monitor and support the application of standards, making cooperation and reciprocal technical assistance between the countries possible and providing consultation machinery to deal with specific situations. An intermediate option might consist of using the ILO procedures but with a different approach on the part of the Committee of Experts which would involve their consideration of standards in terms of Mercosur countries exclusively.
Large numbers of workers unprotected
The application of Conventions and labour legislation is not independent of the level of development and the structure of employment in the different countries. In Mercosur, more than half the labour force is to be found in the informal sector, made up of independent workers, workers in domestic service or in small enterprises. A high percentage of these workers are not covered by the protection of labour standards and legislation and their gradual integration opens up another field for cooperation and community action.
Finally, the inspection and monitoring capacity of the Ministries of Labour to ensure compliance with the legal and standard-setting framework requires development and improvements in all the Mercosur countries. To cite one example of the dearth in this area, in Argentina and Paraguay in 1994 there was one labour inspector for every 5,000 urban workers, in Brazil 1 for every 20,000 and in Uruguay 1 for every 13,000. The strengthening of these services means allocating additional resources, a responsibility largely incumbent on each country but which also offers opportunities for cooperation and mutual technical assistance among Mercosur countries.
Notes
1
ILO: Panorama Laboral 1996, Lima.
2
ibid.
3
This is because the rate of urban employment in Paraguay is also calculated on the basis of the data corresponding to the capital.
4
ECLAC: Panorama Social, 1995.
5
UNIDO, 1993.
6
Costo laboral manufacturero. Incidencia sobre la competitividad y la protección de los trabajadores, V.E. Tokman and D. Martínez, working document No. 46, ILO, Lima, 1996.
7
McKinsey Global Institute, 1994.
8
M.B. Peluffo and C.G. de Kamfbolec, 1994.
9
ibid.
10
See in this issue Alfredo Conte-Grand: Social Security and integration processes: Mercosur and social security, p.66.
11
See J.R. Delgue and F. Pérez Tabó, 1993.
12
P. Stalker, 1994.
13
S. Pérez del Castillo, 1993.
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CONTINUE...
Updated by TH. Approved by GQ. Last updated: 30 April 1998.
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