Itaú BBA - CHILE – Still weak labor market in August, despite some signs of improvement at the margin

Macro Latam

< Back

CHILE – Still weak labor market in August, despite some signs of improvement at the margin

September 30, 2020

Improvement of hours worked signals that the worst has likely passed

Fragile labor dynamics endured in the quarter ending in August, but the worst is likely behind.
The unemployment rate came in at 12.9%, 5.3 percentage points above last year’s print, but lower than the historical maximum recorded in the quarter ended in July and below our call and that of the market (13.5% and 13.6%, respectively). Employment contracted 19.4% YoY, the mildest drop since the quarter ended in May (-20.0% in 2Q20), with still 1.7 million jobs shed (cycle peak: 1.8 million jobs destroyed). Meanwhile, as the labor force fell by a milder 14.5% YoY (15.4% in 2Q20), the participation rate improved at the margin to 52.5%. Yet, still being 10.2 pp below last year’s participation print, it contained an even more pronounced rise in the unemployment rate. In the Santiago Metropolitan Region, the unemployment rate remained elevated at 13.6% in the quarter (13.5% previously; 12.8% in 2Q20). The loosening of mobility restrictions during 2H20 would support increased labor market participation ahead. Risks to an employment recovery come from the fact that out of the 10% of the labor force who had contracts suspended under the employment protection program, close to half have yet to return to work (according to the ministry of labor) and could potentially move to unemployed if the expected recovery disappoints.

Private wage earners and self-employed workers led job shedding, but other categories are still shrinking. Salaried employment fell 13.5%, led by private salaried posts retreating 16.0% (-17.5% in July; -15.5 in 2Q20). Meanwhile, self-employment remains close to a third below last year’s level (-32.8% in 2Q20 and -3.6% in 1Q20). Despite significant fiscal stimulus, even public employment is shrinking. Another sign that the worst has likely passed came from an improvement at the margin of hours worked. The effective labor force (hours worked multiplied by employment) contracted a milder 22.1% in August (22.7% in July; similar to 2Q20). 

As social distancing measures are gradually lifted, activity and labor dynamics should improve. Additionally, the significant monetary and fiscal stimulus would support job creation, leading to lower unemployment towards yearend. For the full year, we expect an average unemployment rate of 10.4% (7.2% in 2019).

Miguel Ricaurte
Vittorio Peretti 

< Back