Itaú BBA - CHILE – Participation and job gains at the margin signal labor market recovery underway in 3Q20

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CHILE – Participation and job gains at the margin signal labor market recovery underway in 3Q20

October 30, 2020

Lingering economic uncertainty would contain the pace of the recovery ahead

The labor market remained in a fragile state during 3Q20, but there is a recovery, in line with the reopening of the economy. The unemployment rate reached 12.3%, a 5.0 percentage point increase over twelve months (milder than the 5.6pp peak rise during the quarter ending in July). The unemployment rate came in above our 11.9% call (Bloomberg market consensus: 12.8%). Employment contracted 18.2% YoY in the quarter, the mildest drop since the quarter ended in May (-20.0% in 2Q20). According to our seasonal adjustment, employment rose 2.5% from 2Q20 to 3Q20. Nevertheless, there are still 1.6 million fewer employed Chileans compared to last year (-1.8 million in 2Q20). Meanwhile, the labor force dropped by a milder 13.5% YoY (15.4% in 2Q20), as the participation rate improved at the margin to 53.4% (from 51.9% in 2Q20). In the Santiago Metropolitan Region, the unemployment rate was higher, reaching 13.2% in the quarter (12.8% in 2Q20). As some workers benefiting from the employment protection program return to their jobs (close to 1/2 of beneficiaries, according to a labor ministry report) alongside greater mobility conditions, we expect the labor market recovery to continue.

The recovery of self-employment, amid the lifting of quarantine measures, is driving the labor market gains. Salaried employment contracted 12.5% YoY in 3Q20, with weaker private salaried posts (down 15.2%, similar to in 2Q20). Meanwhile, self-employment shrunk by 28.7% (34.7% down in 2Q20). In another signal that the worst has likely passed, the effective labor force (hours worked multiplied by employment) contracted a milder 18.3% in 3Q20 (22.1% in 2Q20).

The improvement of the labor market will be led by flexible self-employment, while lingering economic uncertainty means contained salaried job growth is likely. In fact, the central bank reported that preliminary qualitative information, compiled through interviews for the upcoming Business Perceptions Report, indicated that firms anticipate to hire only seasonal workers in coming months, as uncertainty holds back other new hiring. Moreover, the prevailing vision was that not all the layoffs due to the pandemic would be reversed. As a result, we expect an elevated average unemployment rate of 10.4% for this year (7.2% in 2019). A recovery next year to 8.7% is anticipated as the significant monetary and fiscal stimuli consolidate an activity recovery.

Miguel Ricaurte
Vittorio Peretti 

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