Official wages rose in June (but they warn of the impact of a slowdown in activity)

Thus, the index that follows the evolution of typical workers with job stability over the last year inflation gained again after falling in May, and as it did in April, March and February.

“Generallywhat is observed is that the exchange rate, despite the high levels of inflation, manages to equalize these levels and in fact in some months it remains one unit above. In fact, RIPTE shows a variation in 2023 of over 55%, with inflation closer to 51%,” explained Hernán Letcher, director of CEPA, to Ámbito.

“What this process does not show in any way is that there are wage-earning industries, which even at parity remain below inflation. And the non-registered wage sectors, whose evolution is more difficult to match these levels,” noted Letcher, who added: “This framework, in any case, is characterized by a wage level similar to the end of 2019. In other words, nothing that was previously lost could be recovered.

In fact, according to the latest data released by INDEC, in May wages rose 7.5% and missed inflation by 7.8%. However, heterogeneity by sector was evident: the registered private and public sector closed higher this month, while the unregistered private sector fell again.

On a cumulative year-over-year basis, Registered private registered an increase of 108.7%, those of the public sector 118.4% and unregistered 77.4%, against inflation of 114.3% on an annual basis for this period.

Facing what might happen in the coming months, Letcher argued that “the momentum will be maintained”: “There will be flat rates equivalent to the level of inflation between now and the end of the year. The inflation curve is not going to maintain the level of slope it has had, in fact July and August will be just over 6%. But, in any case, we believe that purchasing power will be maintained in the coming months.”

Impact of the activity

Apart from the impact of high inflation on purchasing power, a decline in economic activity levels can also have a negative impact on wages. And that, analysts warn, could conspire this year in the race between income and prices.

“Clearly, when there is inflation, especially when it is so high, there is a risk of a loss of purchasing power in wages. But when there is a recession, this possibility is much greater. Because obviously companies are pocketing the wages they can’t pay, because their sales are falling, updating them at a lower rate than inflation. With this, they manage to reduce the cost of wages,” explained Aldo Abram, executive director of the Libertad y Progreso Foundation.

“It’s usually the case that people’s income tends to lose purchasing power most likely when there’s a recession. But the ones that are more complicated when there is high inflation, and not to say if it is combined with a recession, are the informal sectors.. And domains that are standard, but work independently. They are the ones who lose the most, because they do not have the protection that those who have official jobs in the private sector have. These sectors tend to be able to track the evolution of inflation more closely, even if there is a recession, than sectors that are independent and informal,” Abram emphasized.

In this regard, the School of Business Sciences of the Rosario Campus of Austral University conducted a study to determine “How much the recession affects the worker’s pocket“. The results allow us to estimate the variation in purchasing power as a consequence purely and exclusively of the business cycle (that is, assuming that the remaining factors affecting wages do not vary).

“A first result is that, on average, Real wages are relatively elastic or sensitive to the business cyclein the sense that a 1% increase in GDP creates a more than proportionate increase in purchasing power (about 1.8%),” the study says.

In any case, this “elasticity” is not the same for all income levels. The report pointed out that “low-wage earners are more affected by the business cycle in general, as their real wages react more strongly to what happens to the overall output of the economy, compared to high-income workers.”

In this scenario, looking at a 3% drop in activity levels for this year (according to BCRA’s REM estimates), the Australian University reported that it could be “we expect the purchasing power of an average formal wage earner to decline by 5.7% due to the effect of the business cycle.” “Clearly, the low-income sector has the biggest loss: for the first decilethe real wage would fall by more than 8.0%. On the other hand, the sectors with the highest purchasing power would lose less than the average. For example, the ninth decile would lose 3.5% of its purchasing powerwhich is still less than half of what low-income workers lose,” the study noted.