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The gradual deterioration of the labor market should continue in the near term.
2023/11/29 | Andrés Pérez M., Vittorio Peretti & Ignacio Martinez Labra

The unemployment rate rose slightly sequentially by 0.1pp during the quarter ending in October from 3Q23 to 8.9% (SA), up from the 7.6% post-pandemic low in early 2021. Employment rose by 0.1% MoM/SA in October, increasing sequentially for the second consecutive month (+0.1% in 3Q23), while the labor force rose also increased 0.1% MoM/SA (0.1% in August). The participation rate in the quarter rose to 61.1% (up 1.3pp over one year to the reach the highest post-pandemic rate; 62.5% average during 2015-19). The unemployment rate of 8.9% (NSA) was in line with the Bloomberg market consensus (Itaú: 9%), rising 0.9 pp from the same quarter last year. Employment grew 2.1% YoY (2.0% during 3Q23), and was driven mainly by formal job posts (3% YoY), while the labor force rose 3.1% (3.0% in 3Q23). Contractionary monetary policy and downbeat business sentiment, point to a gradual loosening of the labor market.

Annual job gains were driven by salaried posts – both public and private. The 2.1% YoY employment increase was pulled up by salaried posts (+2.7% YoY) driving positive gains. Public salaried posts rose by 7.7%, likely reflecting transitory job posts related to the Pan-American games (6% in 3Q), while private salaried posts rose by 1.7% (2.1% in 3Q). Self-employment increased by 0.9% (in line with 3Q). In terms of economic sectors, job growth was lifted by healthcare, public administration and commerce, while construction concentrated job losses (sustaining the view of weak investment in the sector). 

The bulk of employment gains are in the formal sector, in line with the pull from public and private salaried posts, in part explaining the continued upside activity surprises. Formal employment increased 3.0% YoY (2.6% in 3Q), while informal jobs contracted 0.2% YoY (+0.6% in 3Q), dragged by domestic services. The informality rate reached 27% (28.3% average during 2018-19), falling 0.7pp over one year. The total number of effective hours worked by employed people in the economy rose 0.3% YoY while the average number of hours worked reached 37.1 hours, falling 1.9%.

We believe the gradual deterioration of the labor market should continue in the near term. According to the Pension Superintendent, the number of unemployment insurance (UI) beneficiaries rose by 5% YoY in September (down from 36% in August), as layoffs based on firms needs rose by 7% YoY in September (up 15% YTD). Meanwhile, while labor demand remains subdued as the BCCh’s index of online job postings (a proxy for labor demand), is contracting less abruptly (down 29% YoY in October compared to a 45% drop in 2Q23). We expect the unemployment rate to average 8.8% this year and next year (7.9% in 2022), with the peak of unemployment rate likely to occur in 1H24 (at around 9.3%).