Itaú BBA - CHILE – Underwhelming labor market dynamics in 2Q19

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CHILE – Underwhelming labor market dynamics in 2Q19

julio 31, 2019

Despite stable unemployment, poor quality of job creation and falling participation are risks to consumption growth ahead.

The labor market continued to show signs of weakness in 2Q19. The unemployment rate came in at 7.1%, somewhat below expectations and the 7.2% recorded one year before. However, job creation remains concentrated in self-employment and public salaried posts, while the labor force participation fell for a fourth consecutive quarter (to 59.4% from 59.9% in 2Q18). Additionally, average working hours retreated, so effective labor (employment multiplied by hours worked) shrunk for the first time since 3Q18, another sign the activity slump is affecting labor market dynamics.

In 2Q19, private payrolls shrunk for the first time since 4Q17. Employment growth was 1.0% YoY (88 thousand jobs). Public administration, health and educational sectors (all linked to public spending) countered the weak private sector job demand, and likely point at the administration’s effort to boost the labor market to contain the recent slump in activity. Overall, public salaried posts increased 6.4% YoY (4.1% in 1Q19), while private salaried jobs were shed at a 1.0% YoY rate (+0.5% in 1Q19). Self-employment grew 2.6% YoY (3.2% in 1Q19). 

Complementary information also points to a job creation moderation despite reporting more dynamism than official labor statistics. In the quarter ended in April, contributors to the pension system grew 2.7% YoY (compared to a 0.1% expansion of the official formal employment figures for the same period), but it was the weakest gain since 4Q17.

Amid low growth this year (we expect a 2.4% increase, following 4% in 2018), the labor market is set to remain weak. We expect the unemployment rate to remain broadly unchanged from last year (at 7%), so consumption is likely to underwhelm and support calls for additional monetary easing in coming months.

Miguel Ricaurte
Vittorio Peretti

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