Argentina - Employment Support Project

Report No. PIC4971 Project Name Argentina-Employment Support Project Region Latin America and Caribbean Sector Poverty Reduction/Employment Project ID ARPA49268 Borrower Argentine Republic Implementing Agency Ministry of Labor and Social Security Office of Employment Policy and Training Av. Leandro N. Alem 638 1001 Buenos Aires, Argentina Telephone: (54-1) 310-5778/79 Fax: (54-1) 310-5781 Date PID Prepared April 1997 Projected Board Date June 1997 1. Country and Sector Background. Argentina has been quite successful in its recent stabilization and reform efforts. Outcomes in the area of employment, however, have been disappointing. In addition to dislocations in the labor market, few jobs have been created. A highly centralized and rigid labor market has hindered mobility, reabsorption of displaced labor, and wage flexibility, and has resulted in a more costly and longer adjustment. In addition, the new exchange rate parity, decreases in the relative price of capital, low inflation, and nominal wage and labor market rigidities favored quantitative adjustments (reduction of labor force) over price adjustments. Wage and non-wage labor costs have remained high in spite of high levels of unemployment (currently 17 percent). Greater employment creation will come about only from increased economic activity, and particularly from lower labor costs, and increased flexibility in contracting and collective bargaining. The Government has already taken substantial measures to reform the labor market, including reductions in labor taxes. In December 1996 the President also signed emergency decrees which began the process of decentralizing collective bargaining in small and medium-sized firms. A law to reform the severance payment system is before the legislature. 2. Project Objectives. The objective of the project is to reduce poverty by providing temporary income support to poor, unemployed workers, as a transition measure while the impact of labor reforms work through the economy. 3. Project Description. The project would finance the expansion of an existing public employment program administered by the Ministry of Labor, called TRABAJAR. Under the program, subprojects can be proposed by provinces, municipalities, and private organizations. These subprojects are evaluated according to objective criteria. The subprojects are small, quickly implemented, labor-intensive investments in the areas of economic and social infrastructure. The program encourages subprojects that are located in poor communities. Under the program the sponsoring agency funds  the cost of materials and any skilled labor, and TRABAJAR finances the wages of unskilled labor up to a maximum of $200/mo. 4. Project Financing. The estimated size of the project is about $3 billion, and would be financed by the Government of Argentina, the World Bank and the Inter-American Development Bank. 5. Project Implementation. The TRABAJAR program is managed by the Ministry of Labor and Social Security, including staff at both the national office and the provincial and regional offices. The Ministry provides the criteria and instructions for such projects. It also assigns the resources for each province using a formula which includes population, unemployment rate and level of poverty (as measured by an indicator of unmet basic needs). Subprojects are proposed by municipalities, provinces, national agencies or private organizations. Up until now the major source of subproject proposals has been municipalities. Subprojects will first be evaluated to judge their viability in several respects including economic, financial, technical, institutional and social. Viable subprojects are then considered by committees constituted at the regional level which include provincial managers of employment of the Ministry of Labor, the regional manager of the Ministry, a representative from the national office of the Ministry, and members of civil society as observers. Subprojects are ranked by a point system which rates them on each of the criteria. Projects are then approved in the order of their ranking, subject to the amount of funding provided. Payments to workers are made by checks by the National Social Security Administration. Each subproject is supervised periodically by provincial staff of the Regulation Department of the Ministry. The projected implementation period for the project is about two years. 6. Project Sustainability. The expansion of TRABAJAR is planned to be a transitional program that could be phased out gradually as the greater flexibility of the labor market increases the rate of job creation in the Argentine economy and results in a reduction in the currently high levels of unemployment. We expect the sustainability of subprojects to be high given the high share of financing being provided by the municipal governments. During project preparation the attention given to operations and maintenance was increased in order to further promote the sustainability of subprojects financed under TRABAJAR. 7. Poverty Category. The project is part of the Program of Targeted Interventions. The wage rate set by the program is effective at self-targeting poor workers, and poor communities are the most likely to benefit from the investments being financed. 8. Environmental Aspects. The operation of the program includes safeguards against damage to the environment and supervision of mitigation measures, as necessary, for subprojects. 9. Program Objective Categories. The project falls under the category of Poverty Reduction (PA). - 2-  Contact Point: Public Information Center The World Bank 1818 H Street N.W. Washington, D.C. 20433 Telephone No.: (202) 458-5454 Fax No.: (202) 522-1500 Note: This is information on an evolving project. Certain components may not necessarily be included in the final project. Processed by the Public Information Center week ending Arpil 18, 1997. - 3 -  Annex Environmental Assessment The Employment Support Project has been assigned a B category. The subprojects financed under the loan are small (average size is US$70,000) and most of the environmental impacts they will have should be able to be predicted and subsequently avoided or mitigated with common practices. All projects will be subject to an evaluation process and a methodology to carry out environmental impact analysis has been incorporated into the evaluation methodology. The description of the methodology together with forms, checklists, etc. is included in both the Operational Manual as well as in the Guide for Presentation of Projects. Environmental considerations are also incorporated in promotion and supervision activities. The counterpart team, with Bank assistance, developed the environmental process, checklists, forms, etc., using as models best practices from other social funds as well as the Municipal Development and FOPAR projects in Argentina. The evaluation methodology, including environmental aspects, was reviewed at appraisal and at negotiations. Environmental aspects will also be included in an ex-post evaluation of a sample of projects. - 4 -