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Lessons from Argentina's Employment Guarantee

In the aftermath of the economic crisis of 2002, Argentina established the 'Plan Jefes y Jefas de Hogar', a job creation programme that can be a torchbearer for India's own employment guarantee. The Argentinian programme employed as much as 5 per cent of the population, drew in large numbers of women, cost just 1 per cent of GDP and far from 'digging holes' created productive assets.

Lessons from Argentina’s Employment Guarantee

In the aftermath of the economic crisis of 2002, Argentina established the ‘Plan Jefes y Jefas de Hogar’, a job creation programme that can be a torchbearer for India’s own employment guarantee. The Argentinian programme employed as much as 5 per cent of the population, drew in large numbers of women, cost just 1 per cent of GDP and far from ‘digging holes’ created productive assets.

L RANDALL WRAY

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IntroductionIntroductionIntroductionIntroductionIntroduction

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or the past decade, a number of researchers in the west (many of whom are now associated with the Centre for Full Employment and Price Stability (CFEPS), at the University of Missouri, Kansas City, US, and the Centre of Full Employment and Equity (Coffee) at the University of Newcastle, Australia, as well as with the Levy Economics Institute of Bard College) have been advocating a job creation programme that has been variously called the employer of last resort (ELR), job guarantee, or public service employment. These proposals were based on the earlier work by Hyman Minsky and Charles Killingsworth, recalling the US New Deal experience with job creation programmes. Most of the work so far has been at the theoretical level. However, Argentina has recently adopted a job creation programme that is explicitly based on our proposals. India and some other countries (Chile, South Korea) also have a history of job creation programmes. India has recently adopted a job guarantee in its National Rural Employment Guarantee Act (NREGA) of 2005, and is now exploring ways to implement the guarantee. This article will provide a preliminary analysis of Argentina’s programme in the hope that India might learn from that experience.

Through most of the 1990s, Argentina had been the darling of the Washington Consensus, adopting a currency board, opening markets, downsizing government, and freeing capital. After its economy collapsed and unemployment and poverty skyrocketed, it implemented a limited employer of last resort programme called ‘Plan Jefes y Jefas de Hogar’, (‘Jefes’, hereafter) to provide jobs to poor heads of households. A labour ministry economist, Daniel Kostzer, had become familiar with the ELR proposals developed in the US and helped design and implement Jefes. By most measures, the programme was an immediate success, providing jobs to two million workers or about 5 per cent of the population, and about 13 per cent of the labour force, within just a few months after its creation. Spending on the programme amounts to about 1 per cent of GDP. The macroeconomic impact of the Jefes programme is larger than that because of the multiplier effect that results from spending by programme participants. Taking this into account, the Jefes programme increases GDP by about 2.5 per cent, playing a significant role in driving Argentina’s robust recovery. Finally, surveys find that programme participants are quite supportive and believe that Jefes allows them to make valuable contributions to their communities. However, president Kirchner has recently announced plans that would make major changes to the programme. In the next two sections I will summarise and evaluate the programme; in the final section I critique proposed changes and note lessons for India.

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‘Plan Jefes de Hogar’ –‘Plan Jefes de Hogar’ –‘Plan Jefes de Hogar’ –‘Plan Jefes de Hogar’ –‘Plan Jefes de Hogar’ –
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SummarySummarySummarySummarySummary

Jefes was born via a presidential degree in January 2002 during the short-term of president Duhale, but was actually signed into law on April 3, 2002. The programme was the government’s primary programme to deal with the economic crisis that gripped

Economic and Political Weekly June 10, 2006 Argentina with the collapse of its currency board. Most other safety net programmes were eliminated or reduced to shift funding to Jefes.

Between April 3 and May 17, 2002 most eligible, unemployed heads of households who wanted to work were registered in a national database in preparation for programme implementation. The household must contain children under age 18, persons with handicaps, or a pregnant woman. Families are generally limited to one participant in the Jefes programme, which pays 150 pesos per month to the head of household for a minimum of four hours of work daily. (At the time of implementation of the programme the poverty line was about 300 pesos per month, so Jefes paid half of the poverty line for half-time work. Participants were expected to search for additional hours of work in formal and informal employment to supplement the Jefes salary.) Participants work in community services and small construction, agricultural, or maintenance activities, or are directed to training programmes (including finishing basic education).

One of the most distinguishing features of the programme’s institutional design is its decentralised administration. The national government pays salaries as well as a portion of equipment costs, and provides general guidelines and some auxiliary services for managing the programme. Such services include maintaining a national registry of programme beneficiaries, as well as databases that track all projects that have been proposed, approved, denied and completed. Note that all these data are publicly available, thereby increasing transparency and reducing corruption. The actual administration of the programme is primarily executed by the municipal governments. The municipalities are responsible for assessing the pressing needs and available resources of their communities and for evaluating the projects proposed by local governments or NGOs. It is estimated that about 10 per cent of participants work in projects organised and run by ‘Picateros’, or community activists, many of whom had led the demonstrations that forced the government to deal with the social crisis created by the economic collapse. The federal government finances no more than 80 per cent (but usually only 60 per cent) of the costs of each project (above the income payments to participants). This ensures that the project executing local governments and NGOs contribute their own resources – guaranteeing a higher level of commitment from the local community.

A large majority of ‘Jefes’ beneficiaries work in community projects. Some specific examples include environmental support in the agricultural sector and improving sewer systems and water-drainage. Much of the community work is performed in local community centres, thus renovation of existing centres or construction of new ones are included as small Jefes infrastructure projects. Examples of community services performed in these centres include food kitchens or family attention centres which address domestic violence issues or provide temporary shelter and other services to abused women or children.

Other projects include health promotion programmes, which offer basic education on sanitary issues – how to handle food and avoid dysentery and other infections.

Others mend old clothes that have been donated to poor communities. A similar programme exists for public libraries, where scrapped books are repaired and catalogued for public libraries in poorer communities. Large-scale infrastructure projects also hire Jefes workers for the repair of roads and bridges. Some projects distribute their output (such as bread baked in small Jefes bakeries) without charge to poor neighbours; others sell crafts and textiles at reduced cost either door-todoor or in public markets. Some large supermarkets have donated space to Jefes products – including fine hand-crafted furniture and cabinets. Finally, some Jefes workers form coops that produce output on government contract (such as school uniforms). These workers receive their Jefes salary for four hours of work, and if they are able to obtain additional orders,

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Economic and Political Weekly June 10, 2006

work more hours and share the net sales revenue among co-workers.

It is also important to note that programme participants receive additional benefits. Many Jefes projects provide free childcare for participants (with the care provided by Jefes workers) – this is important given that many participants are mothers with young children. Projects also provide literacy programmes for adults, tutoring for children, counselling for families with drug abuse or domestic violence problems and family planning. In interviews, many of the women working in the programme emphasise that close proximity of their job to home is critical. Many of them had never been able to work outside the home even before the economic crisis because long commutes would take them too far away from their children. Jefes jobs in their neighbourhood allowed them to check on their families throughout the day.

The World Bank and labour ministry studies indicate that most projects are successfully completed. These are not “make work” projects of “digging holes” as some critics of public job creation programmes have warned. The projects provide real benefits to the community. Further, by increasing political participation, the programme ensures that even when workers leave the programme, the community will continue to benefit from the enhanced feeling of community. This is particularly true of the projects that are organised at the “grassroot” level by community activists – who know the needs of the neighbourhoods and work hard to increase social integration.

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Preliminary AssessmentPreliminary AssessmentPreliminary AssessmentPreliminary AssessmentPreliminary Assessment

According to the World Bank’s reviews, the programme has been highly successful in achieving a number of goals. First, the programme spending is well targeted to the intended population – poor households with children. Second, the programme has provided needed services and small infrastructure projects in poor communities. Third, it has increased income of poor households, reducing indigency rates, although it has not pulled them above the poverty line (this is not surprising, because of the low monthly income). Finally, many participants have successfully transitioned out of Jefes and into formal sector work. While there have been some problems associated with the implementation and supervision of the programme, cases involving mismanagement or corruption appear to have been relatively rare. Still, there are reports of favouritism, and some home country researchers have critiqued programme design. A major problem is the limited entry – those who did not sign up in time are generally excluded, even though they meet programme criteria.

One of the most surprising results of the programme was the large influx of women

– they accounted for over 60 per cent of programme participants in the beginning, and now make up nearly 75 per cent. It is suspected that many households chose wives to participate in the programme while the husbands attempted to find private sector work, including informal sector work. As the economy recovered, more of the men were able to move out of Jefes and into formal sector employment – this increased the female ratio as women have had a harder time transitioning out. In addition, some women do not want to leave the programme because it offers them the ability to work near their homes. The advantage of Jefes is that it can “take workers as they are”, providing them work they can perform even if they have familial constraints as well as no previous formal labour market experience or skills. This is especially important for women. At the same time, the increasing feminisation of the programme also generates criticism – as discussed below.

The response of the beneficiaries to the Jefes plan has been overwhelmingly positive: formal surveys find only a small fraction of Jefes workers have said that they are dissatisfied with the programme, while 90 per cent are either satisfied or very satisfied with it. When asked how they felt when enrolling in the programme, most people (over 70 per cent) reported “respected” as opposed to “undervalued” or “politically used”. Some of the reasons for this satisfaction include the opportunity “to do something” and “help the community,” but note that the second largest reason for satisfaction that people report is the good environment that Jefes jobs provide. When asked what they would prefer to do as part of Jefes, most would like to be involved in training and community projects.

In August 2005, I went with colleagues from CFEPS to interview government officials, project supervisors and participants. We visited a half dozen projects and interviewed close to 100 participants. A large majority of the participants – as well as their supervisors – were women. Our findings were very similar to those reported in formal surveys: almost all participants reported that they were happy with the programme, and they listed the ability to do something productive as well as the opportunity to work with others as the most important reasons for their satisfaction. Most said they were learning new skills that would prepare them for formal sector work, although a few who had previously held skilled jobs worried that participation in Jefes would not enhance their employment prospects. Finally, we asked every participant interviewed whether she/he would prefer to continue to work in Jefes, or whether they would prefer to receive the same amount of income in the form of welfare. Every participant, without hesitation, responded that she/he preferred to work rather than receive welfare – even those who had never worked outside the home previous to Jefes.

The early experience of the Jefes shows that a huge programme can be implemented quickly without major problems. However, during our August 2005 visit (as well as an earlier visit in 2003), we found a series of discussions that high level government officials had reservations about the programme. Particularly during the most recent visit, many officials expressed the view that while Jefes had been necessary to deal with the crisis, it would be a temporary programme. Because the economy was now performing well, most “employable” workers had already been pulled out of the programme, to be hired by private firms. Unemployment was no longer a major problem, at least in the developed, urban, areas. Several officials at the labour ministry said that those who remained in the programme were either “economically inactive” or insufficiently trained to obtain private sector work. The preferred solution of these officials would be a “reform” thatwould replace Jefes with unemploymentcompensation and incentives for training for those who were economically active, and expanded welfare (through expansion of a programme called ‘Familias’) for the economically inactive. While it was not explicitly stated, it was clear that most of the women in Jefes would move into welfare, and many of the men would be moved to the unemployment programme.

In our discussions with these officials, we explored their views in depth. When we pointed out that every participant we interviewed preferred work over welfare,

Economic and Political Weekly June 10, 2006 most of the officials responded that many participants were not producing anything of value. When we described the bakeries that provided bread to poor neighbours, or childcare services, or handicrafts sold in markets, the officials responded that such production of goods and services were not “efficient”. It became clear that the officials were using market measures of efficiency, and while they did not deny that the women working in the community bakeries were doing something “useful”, they insisted that “the market” could provide bread more efficiently using skilled workers and modern factories. Yes, the women would lose their jobs, but they could use their welfare benefits to buy bread. Many of the high level officials either refused to recognise, or were not capable of recognising, all the other benefits that Jefes participants gained from working: social interaction, ability to contribute to society, and access to a range of social services provided by organisers.

We discussed two other issues with officials. Some argued that the government did not have the “institutional capacity” to run the programme. Some projects were not well-designed, so that they operated inefficiently. Jefes workers sometimes duplicated work done by regular government employees, or, worse, did the work of government employees (who then shirked work). There were some tales of waste and corruption. Most importantly, officials and participants alike said that Jefes does not provide sufficient training to prepare most participants for private sector work. However, when we discussed this matter with the top labour official in charge of workforce training programmes, he said the lack of institutional capacity was related to the budget: if more money was provided, he was sure that the capacity could be improved sufficiently. This leads to the other issue we discussed: money. As discussed above, Jefes spending is equal to about 1 per cent of GDP, and all government officials we interviewed agreed that spending at that level was affordable. Hence, their desire to “reform” the programme by replacing it with unemployment compensation and welfare was not to cut costs. Indeed, they realised that their reform would almost certainly increase spending.

On February 14, 2006 president Nestor Kirchner announced that the Jefes programme would be “redesigned”. This is not surprising in light of our August visits with officials. He announced that there will be two separate programmes that will replace Jefes:

  • (a) Unemployment Insurance: That will pay 225 pesos monthly, with a maximum time limit of two years. The programme will focus on training and job search and is designed for the “economically active”. The labour ministry expects 5,00,000 participants.
  • (b) Plan Familias: Welfare for poor families: It will pay a monthly benefit on a scale from 150 pesos for a family with one child, up to 275 pesos for a family of six children. It is designed for the rest – the “economically inactive” population.
  • For now, it appears that individuals will leave Jefes voluntarily for one of the other programmes. However, note that as Jefes still pays only 150 pesos per month to participants, there are strong economic incentives for all to leave Jefes (except for mothers with only one child, who would receive the same payment in Familias). It is too early to know how the population will react to this proposal.

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    ConclusionConclusionConclusionConclusionConclusion

    The Jefes experience allows us to move from the realm of theory to the reality of practice. Many of the fears of the critics of ELR have been shown to be fallacious. Job creation, even on a massive scale and under difficult circumstances, can be successful. Participants welcome the chance to work. They view participation as empowering, rather than as modern slavery. The programme can be democratically implemented and can increase participation in the political process, with relatively few instances of corruption and bureaucratic waste. Useful projects can be undertaken. Even with a huge programme that employs 5 per cent of the population, communities have not yet experienced problems in finding useful work for participants. Jefes has reduced social unrest, and has provided demand for private sector production. Still, the president’s proposed redesign shows how important it is to develop political support for a job guarantee. Because Jefes was viewed as a temporary programme to deal with an economic and social crisis, rather than as a commitment to a job guarantee, support among officials declined when the crisis passed.

    Could a programme like Jefes work in India? At the very least, India can learn from the programme’s successes and failures. Decentralisation and implementation of the programme by community groups and local government ensured that projects met local needs, and helped integrate poor families into the social and political life of their communities. As one of the ‘Picatero’ organisers put it to me, “The people that actually have the answers are the ones with the needs, those that suffer from starvation. If you target your policies to these people you cannot go wrong. This government did a good job; they addressed the root of the problem…. They didn’t look to the top; they went straight to the bottom.” The programme’s transparency minimised corruption – even if it did not eliminate it entirely. On the other hand, the decision to include only heads of households kept many people from participating – and forced families to choose who would participate. Likewise, the decision to have a cut-off date meant that those who came too late could not get into the programme. Finally, the decision to limit hours in the programme and to set the wage at half the poverty line forced many to work less than desired and kept them in poverty.

    As India implements its job guarantee, it makes sense to limit the scope of the programme in terms of participants and hours worked to keep it manageable. However, once the programme is underway and operating smoothly, the job guarantee should be expanded – to anyone who is ready willing and able to work. So long as the programme wage is held constant (say, at the poverty line), a universal job guarantee at that wage will not interfere with private labour markets. When the economy does well, private employers will recruit workers out of the programme by paying a wage higher than the programme wage; when the economy slows, workers who lose private sector employment will move to the job guarantee programme. The programme will fluctuate counter-cyclically, providing a powerful stabilising force. While some workers might never be recruited out of the programme, they still will benefit from working and will provide socially useful goods and services to their communities. Centuries of experience with a variety of forms of capitalism demonstrate that private markets alone will never provide jobs to all who are ready and willing to work. Only a public commitment to a job guarantee can eliminate the waste due to involuntary labour.

    m

    Email: wrayr@umkc.edu

    Economic and Political Weekly June 10, 2006

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