Itaú BBA - CHILE – Sharp labor market deterioration in 2Q20

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CHILE – Sharp labor market deterioration in 2Q20

July 31, 2020

As economic weakness endures and lockdown measures gradually lift, the labor market is likely to remain weak

The deterioration of the labor market consolidated in the second quarter of 2020, amid an intensification of mobility restrictions. The unemployment rate reached 12.2%, below our call of 13.1% and the Bloomberg market consensus of 12.6%, but 4.9pp higher over twelve months. Historic job destruction persisted (-20% yoy; 0.7% in 1Q20), with close to 1.8 million jobs destroyed over twelve months. The increase in unemployment was offset by a sharp drop in participation (down 10.8pp over 12 months to 51.9%), likely due to social distancing measures. Meanwhile, in the Santiago Metropolitan area, the unemployment rate was higher at 12.8% in the quarter (7.4% in 2Q19).  

Job destruction was widespread in the quarter. Self-employment was a key drag (down 34.7% yoy; -3.6% in 1Q20) as mobility constraints limit the buffer ability of this category during economic downturns, while private salaried employment’s 12.9% fall (+2.9% in 1Q20) led job destruction (-9pp contribution). Public employment also shrunk, dropping 0.6% yoy (+6.1% in 1Q20). Pension regulator data hints that the deterioration is even shaper as 660 thousand workers had their contracts suspended under the employment protection program by the end of June, with the majority (close to 70%) located in the Santiago Metropolitan Region. This is broadly in line with INE’s reporting that workers absent from the workplace represent 18% of those employed (+163.2% YoY to 802 thousand people). Consequently, the average number of hours worked including absent workers retreated to 32.3 per week (from 38 one year earlier), while remaining broadly stable for workers on the job. Effective labor (hours worked multiplied by employment) registered a historical drop of 22.1% over twelve months (+0.7% in 1Q20). 

As economic weakness endures and lockdown measures are only gradually lifted, the labor market is likely to remain weak. While we expect to see some improvement during the latter part of 3Q20, the average unemployment rate would still exceed 10% this year (7.2% last year).

Miguel Ricaurte
Vittorio Peretti

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