Itaú BBA - CHILE – Weak labor market endures in July

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CHILE – Weak labor market endures in July

August 28, 2020

Historic job losses, record low participation and reduced work hours are consistent with only a gradual activity recovery scenario

Labor market dynamics remained poor in the quarter ending in July, with historic job losses, record low participation and reduced work hours, all consistent with only a gradual activity recovery scenario. The unemployment rate reached 13.1%, the highest print since 1986 and rising 5.6pp over twelve months. The rate came in between the Bloomberg market consensus of 12.8% and our 13.5% call. Employment shrunk 20.6% year-on-year (20.0% drop in 2Q20 and 0.7% increase in 1Q20), equivalent to a record-high destruction of more than 1.8 million posts (only marginally greater than in 2Q20). Additionally, labor participation plunged 10.9pp from last year to 51.8%, a new on-record minimum but showing some signs of stabilization from the previous month (61.3% average since 2009), containing an even sharper unemployment rate rise. In the Santiago Metropolitan Region, the largest urban area in the country, the unemployment rate was higher, reaching 13.5% in the quarter (12.8% in 2Q20). As lockdown restrictions are gradually eased, some participation recovery is likely. Meanwhile, business surveys indicate that employers are in no rush to expand their payrolls as uncertainty endures. 

Despite labor protection programs, salaried job posts continue to lead employment destruction. Self-employment fell by 32.8% year-on-year (-34.7% in 2Q20 and -3.6% in 1Q20), likely a result of mobility restrictions, an accounting for around a third of total job losses. Meanwhile, private salaried employment fell by 17.5% (-15.5% in 2Q20 and +2.2% in 1Q20), contributing close to half of all layoffs. On the public sector front, employment fell a mild 2.7% year-on-year (-0.6 %% in 2Q20 and +6.1% in 1Q20). Overall, the average number of hours worked, including absentees, fell to 32.1 per week (37.7 in July last year), while it remained generally stable for those who remained active. The effective labor force (hours worked multiplied by employment) continues to fall sharply, registering a decline of 22.7% in the quarter ended in July (22.1% down in 2Q20 and -0.9% in 1Q20). Meanwhile, complementary data from the pension regulator shows that towards the end of July, nearly 700,000 workers saw their contracts suspended under the employment protection program (10% of total employed), with 67% of the contracts concentrated in the Santiago Metropolitan Region. A strength of the economic recovery ahead will partly depend on the percentage of such workers that are retained once the protection program expires.

As mobility restrictions continue to be lifted, we expect an employment recovery during 2H20, but likely led by lower-quality self-employment. Overall, an average unemployment rate of 10.4% is estimated, up from 7.2% last year.

Miguel Ricaurte
Vittorio Peretti 


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