Contrary to the positive outlook economists had after Argentina’s economic boom in 2017, the country has been struggling with financial volatility and continuous devaluation since the beginning of this year. January 2017 to October 2018 devaluation of the Peso currently stands at 161%.
Argentina’s inflation rate continues to remain high as well – 40.5% as of September 2018. It is a common misconception that with continuous devaluation and rising inflation in a country, salary movement also follows at the same pace. In fact, this rarely happens. While some employers may use cost-of-living as a basis to adjust salaries to cope with rising inflation, Birches Group believes that cost-of-labor is the more reliable approach.
During Argentina’s economic boom in 2017, significant movement in salary was clearly seen for all employee groups. But once inflation started to rise continuously into 2018, a much slower movement in salary was recorded, demonstrating once again that salary does not move at the same pace as inflation.
According to the latest results from the Birches Group Multisector Compensation and Benefits Survey for Argentina, salary movement from October 2017 to October 2018 is trailing the rate of inflation recorded during the same period. The gap ranges between 50% to 60% depending on the category of jobs examined, as illustrated in the chart above. This reflects caution and sound management on the part of employers but could also generate requests for additional salary increases to meet employee expectations.
With the continuing economic turmoil in Argentina, a few employers have already reached out to us to find out how to best respond. Birches Group recommends that every employer in Argentina should have a Special Measures Policy in place that outlines the proactive steps they will take when unforeseen and uncontrollable events occur. A Special Measures Policy allows employers to act quickly and make informed decisions based on specific triggers and processes, while still adhering to a market-based approach to compensation. Most importantly, a policy provides clarity to both employees and managers. A key part of managing special measures is to keep apprised of market changes.
Together with a Special Measures Policy, employers also need a reliable source of market data. Birches Group publishes updated compensation and benefits survey data in Argentina three times a year, in April, July and October. Subscribers get access to all updates released during their subscription period, providing clients with current information on market movement when you need it.
Birches Group can also assist employers in developing their own Special Measures Policy, to help address not only high devaluation, but also inflation and other non-economic events such as natural disasters.
For more information, please contact us.