Itaú BBA - CHILE - Looser labor market in 4Q16

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CHILE - Looser labor market in 4Q16

January 31, 2017

A weakening labor market will aid the ongoing disinflationary process.

The unemployment rate picked up in the final quarter of last year, resulting in the average 2016 unemployment rate coming in at the highest level since 2012. The prolonged economic slowdown has led to a gradual loosening of the labor market. The 4Q16 unemployment rate came in at 6.1%, up 0.3 percentage points from one year before, and in line with market expectations. Therefore, the unemployment rate averaged 6.5% in 2016 (6.3% in 2015). Despite the seemingly small rise in the unemployment, there are additional indications that the labor market is loosening further. In virtually every month of 2016, the participation rate was lower than in 2015, job creation is near historical lows and almost entirely composed of low quality roles and temporary in nature.

As expected, the construction sector is shedding jobs following the end of tax-incentivized boom. Total job growth was 1.0%, in line with the previous two quarters, meanwhile, the labor force expanded 1.3%. Of the 81 thousand total jobs created, commerce created 49 thousand, followed by administrative services (24 thousand). The main sectors destroying jobs are those paying higher earnings such as mining (22 thousand), construction (15 thousand) and financial services (17 thousand). Household employment continues to decline, reflecting a weaker labor market. Overall, job growth in 4Q16 was driven by the seasonal increase during the festive season, particularly in commercial activity. This is in line with the rebound in private consumption, partly inspired by a pick-up in consumption tourism.

The quarter was characterized by an increase of informal job growth. Low quality self-employment remains the driving force behind employment gains, increasing 4.6% year over year (4.2% in 3Q16) and 6% in 2016, upfrom 0.8% one year before. Meanwhile salaried employment contracted 0.1% from 4Q15, in line with 3Q16, and expanded only 0.4% for the full year, down from 2.3% in 2015. Meanwhile, within salaried employment, contracted workers declined 0.4% year over year, while there was a 1.8% increase in uncontracted workers. Overall, uncontracted job growth came in at 4.5% in 2016, a sharp rise from the 0.2% gain in the previous year.

Asa significant economic recovery remains elusive in the short-term, we expect the unemployment rate to continue to gradually edge up and the composition of employment growth to remain of low quality. Low growth and a weakening labor market will aid the ongoing disinflationary process, leading to additional monetary loosening this year.


Miguel Ricaurte

Vittorio Peretti


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