Itaú BBA - CHILE – Despite low unemployment, labor market remains weak in July

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CHILE – Despite low unemployment, labor market remains weak in July

August 31, 2017

Private job growth remains elusive

The public sector, along with non-salaried employment, continues to prop up job growth. In the quarter ending in July, the unemployment rate reached 6.9%, down by 0.2 percentage points in 12 months. The print came in below the 7.1% Bloomberg market consensus, but closer to our 7.0% estimate. Employment growth picked up to 2.2% (from 1.9% in 2Q17), the fastest rate since 3Q15. However, once hours worked are considered, employment is growing at a low 0.8%, stable from 1Q17. Furthermore, private salaried employment remains weak.

Private salaried employment growth contributed only 0.2 percentage points to the 2.2% total employment growth. Meanwhile, public sector growth remains elevated with a 0.9 percentage point contribution to total growth (around 40% of total job growth). Public administration, healthcare and education jobs explain the 7.8% growth in public sector employment (7.4% previously). We continue to expect this impetus to be transitory as fiscal consolidation intensifies (government expenditure decelerated to 1.9% year-over-year in July, down from 5.7% in 1H17). Meanwhile, non-salaried employment (self-employed plus small business owners) is the other principal driver of job growth, explaining almost 2/3 of total job growth (after having explained all of job creation earlier in the year), also reflecting a loose labor market. Additionally, domestic service employment continues to contract, reflecting the effects of a sluggish economy.

The dynamics of the labor market mirror a lethargic economy with minimal private waged job creation. An increase in the unemployment rate has been contained by non-salaried and public sector job growth. We expect the unemployment rate to average 7.0% this year (from 6.5% in 2016), signaling still low consumption dynamics this year.


 

Miguel Ricaurte

Vittorio Peretti

 



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