Economy Minister Luis Caputo issued a direct message to the business community to try to reshape the public debate on labor reform, particularly on one of its most sensitive chapters regarding the cost of formal employment: the reduction of employer contributions for new hires. “I’m still in shock,” the official wrote on X, in a post that was retweeted by President Javier Milei and was read within the ruling coalition as a dual gesture: towards the private sector and towards Congress, where the bill already has half sanction from the Senate and must now face its decisive stage in the Chamber of Deputies. Caputo's comment aimed to highlight the impact of the “Labor Formalization Incentive Regime (RIFL)” and the “Labor Assistance Fund (FAL)”, two instruments included in the text approved by the upper house and that, according to a study by the Argentine Institute of Fiscal Analysis (IARAF), significantly reduce the burden on the employer when hiring a worker under the parameters of the new regime. The internal calculation is simple: with half sanction from the Senate, the Government needs to show sectoral backing to shield the project in Deputies and to cushion the wave of judicialization that —as already admitted in courts— could begin as soon as the rule is enacted. On the economic front, the Government is trying to establish that the cost of hiring —especially for the first job or for formalization— is the core of the resistance to hiring new workers. “We lowered employer contributions by 85% for new jobs and no one is talking about it,” Caputo stressed. In the business sphere, the reaction was more ambiguous than expected by Caputo: chambers and entities value the relief on burdens but, at the same time, warn that without sustained growth, credit and macroeconomic predictability, the incentive may be insufficient to trigger a wave of employment. The opposition, in turn, insists that the package reconfigures rights and shifts costs to workers and the pension system, in addition to opening a wide judicial dispute over changes in jurisdiction and labor conflict mechanisms. In that context, Caputo's post also had a component of pressure: if the business community does not publicly celebrate a cut that the Executive considers historic, the ruling coalition fears losing a key ally in the cultural and legislative battle for the reform. With the reform, that pressure would decrease slightly for large companies and to a greater extent for SMEs, while for workers covered by the RIFL it would drop sharply during the 48 months of validity of the scheme. In the measurement of the combined burden of personal contributions and employer contributions, the report states that Argentina is among the countries with the highest relative weight on the total cost of labor. On the political front, the ruling coalition argues that the reform seeks to dynamize the formal labor market and reduce litigation. Finally, when calculating the total fiscal wedge —contributions, levies and income tax— the analysis concludes that the aggregate impact on an average worker is also reduced, marginally for standard formal employment and more visibly for those who enter under the RIFL umbrella, where the wedge would fall to 27.8% of the total cost of labor. The Government interprets these numbers as political ammunition for the final stage of parliamentary negotiation: the argument is that the reform not only flexibilizes rules, but also lowers the “price” of hiring in white. In the first metric, Argentina appears with an employer burden of 21.2% of the total cost of labor, placing it in the upper part of the ranking. According to that estimate, the employer's contributions for a new employee would drop from the current 27% to 15% for 48 months. However, the discussion moves on several fronts at once. In line with that, the report adds that, when considering personal contributions and employer contributions together, the so-called “wedge” would go from 44% to 32%, a reduction of 12 percentage points relative to the gross salary. After the incorporation of the FAL and RIFL mechanisms, that weight would decrease, with a more marked improvement for cases framed in the special formalization regime.
