The Argentine Senate approved President Javier Milei’s hallmark labor reform legislation, marking a significant advancement for the libertarian’s bold agenda that may facilitate his administration’s re-entry into international markets. The Senate, in a decisive 42-30 vote, has approved the comprehensive bill, which will now proceed to the lower house for further deliberation. Milei’s administration executed 28 concessions on Tuesday to secure further backing from legislators and provincial governors. Among the alterations, his administration eliminated a provision that aimed to decrease employers’ income taxes, citing concerns over a potential decline in provincial revenue. Inside, senators engaged in debate while a limited number of protesters hurled Molotov cocktails at riot police, who retaliated with water cannons and tear gas. Most of the capital’s downtown functioned as usual on Wednesday.
Investors have monitored the bill’s advancement as an indicator of Milei’s political robustness following his party’s victory in Argentina’s midterm elections last October. This marks the initial step in a series of structural reforms he intends to implement, although the schedule for subsequent initiatives has experienced delays. The endorsement of this legislation, which represents the most comprehensive employment reform in decades, has the potential to reduce Argentina’s sovereign risk and bring the government nearer to the issuance of international bonds. In response to resistance from Argentine banks, Milei removed a provision that would have permitted workers to opt for direct salary deposits into virtual wallets such as MercadoLibre Inc’s Mercado Pago. This development represents a challenge for Argentina’s emerging fintech sector, particularly given that MercadoLibre Executive Chairman Marcos Galperin has been a steadfast supporter of Milei.
Notwithstanding the recent adjustments, the labour reform remains poised to be one of the most significant transformations of Argentina’s economy in decades. The majority of the nation’s principal labor regulations originate from the 1970s. It signifies a transition for Milei from his chainsaw-style austerity during the initial two years of his administration to a more measured, chisel approach. The reform seeks to reduce costs for employers, promote hiring, simplify severance obligations, and redefine collective bargaining agreements. It further decreases domestic taxation on automobiles, mobile devices, and rental real estate. While economists regard the reform as long overdue and necessary, few anticipate that its immediate effects will alter a prevailing trend. Since Milei assumed office, Argentina’s formal private sector has experienced a decline of nearly 200,000 salaried positions, representing approximately three percent of the total workforce. According to Daniel Schteingart the economy experienced growth last year, even as the private sector workforce contracted—a development not seen in at least three decades. In line with his austerity measures, Milei has eliminated 80,000 government positions, as per official statistics. The labour market’s losses indicate a K-shaped recovery under Milei, characterized by growth in export-driven sectors such as agriculture, energy, and mining, which employ relatively fewer workers, while labour-intensive industries like manufacturing, construction, and retail exhibit signs of recession.
Some economists argue that the challenges faced by struggling sectors highlight the need for sensible changes in labor reform, as employers’ costs in Argentina, including social-security contributions, surpass those of other countries in Latin America. The high costs and unpredictability associated with litigation over severance have deterred employers from expanding their workforce. Analysts note that the primary factor contributing to recent job losses is the stagnation or decline in activity within industries that are typically labor-intensive. Unemployment in Argentina has not experienced a significant increase despite the downturn in the formal labor market, largely due to a notable rise in informal employment, which has added 231,000 jobs since Milei assumed office, surpassing the losses in the formal sector. The count of independent contractors has increased by approximately 140,000. This month, senators are set to vote on legislation aimed at altering environmental protections for glaciers. Amendments to the Glacier Law would enable copper miners to allocate substantial investments towards projects, alleviating the existing legal ambiguities surrounding environmental penalties. However, that bill has been delayed following Milei’s need to make multiple concessions regarding the labour reform.