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All Milei measures lead to salary reduction


The electoral campaign is over. The previous conjectures regarding what the brand new government chaired by Javier Milei in its beginnings. The curtain has been drawn and the first measures are already taking place in the first scenes of the first act that are enough to understand what the play is called: salary reduction.

The State sets the devaluation of the peso or the increase in the price of the dollar, more than doubling it. This rise in the price of the dollar is quickly translated into prices because almost every product in the economy has some component at a dollar price. Since they are priced in dollars, imported products become more expensive in pesos, as do exportable products, such as food.

Deregulation of prices and wages ironed

Added to this impulse of exchange rate inflation is that the State no longer sets price ceilings or controls them.

On the other hand, the State sets the same amount of money for the budget next year as it had for 2023. Therefore, the same amount in salaries, while prices grow rapidly. The State gives this signal to the market.

Reduction of energy and transportation subsidies

The State reduces subsidies for energy and transportation, although the magnitude is not clear. Furthermore, both prices are growing.

This implies that a greater part of the salary must be allocated to pay them.

Layoffs and increase in unemployment

Claims about the reduction of public works have already triggered layoffs in the construction industry, impacting other industries.

In addition, massive layoffs are being prepared in the State, along with a labor reform that is reported and is expected to reduce compensation and allow hiring for short terms, without the need to compensate for dismissal.

Economic policy objectives

When announcing the measures, Economy Minister Caputo emphasized that there is “repressed” inflation and “repressed” prices. In particular, the price of the dollar and that of energy. It does not mention salary, the price of work, so it would not be “repressed.”

In short, relative prices change: the dollar and energy rise, leaving the salary fixed, therefore, the salary falls.

There is no search for price stability, but hyperinflation is the main objective of economic policy because it is used as an all-terrain instrument to reduce the purchasing power of salaries and pensions.

By stating that the previous management left a potential annual inflation of 15,000% (which implies a monthly inflation close to 123%), the current management can afford to have a monthly inflation level of 40% and ensure that it avoided a catastrophe.

By decreasing the salaries, purchases are reduced. In this way, not only consumption is reduced but also investment, because it is not necessary to expand productive capacity. Demand drops. Reduce activity. Fewer employees are needed, also in commerce: layoffs occur.

Higher unemployment shifts priorities and no longer focuses on salary magnitude but rather on job care.

This is combined with measures to increase withholdings on industrial exports and the increase in energy along with the opening of imports. This tends to destroy industry and, therefore, also employment.

Stagflation, or rather, depreflation, is also an objective of economic policy because it allows for salary reduction and social discipline.

Thus, the main measures announced on December 12 focus on salaries. All Milei roads lead to reduced wages and employment, the main, although not exclusive, feature of the new model.

UBA-UNDAV Economist.





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