CHILE – Employment accelerates in July

Targeted government programs to encourage formal job creation would likely support a further employment recovery ahead

Andrés Pérez & Vittorio Peretti


The unemployment rate for the quarter ending in July came in well below expectations at 8.9% (Bloomberg market consensus: 9.2%; Itaú: 9.3%), 4.2pp down from last year, but characterized by a slower recovery of the labor force at the margin (+0.6% MoM/SA), as opposed to employment (+1.4% MoM/SA). Overall, employment levels are down by just over 9% (or around 800 thousand) compared to the pre-pandemic peak, gradually recovering from the cycle low of a decline exceeding 20% (around 2 million posts) in the July quarter of last year. Targeted government programs to encourage formal job creation, a notable rise in job postings and the easing of mobility restrictions would likely support further employment recovery ahead.

During the quarter, employment increased 15.2% YoY (+12.6% in 2Q), partially offsetting the 20.6% decline recorded one year earlier. Self-employment rose 37.5% YoY (32.8% drop last year), as the reopening economy supported gains. Informal self-employment increased by more than 50% (+420 thousand posts), while formal self-employment gains were more restrained. Salaried public posts retreated 3.1% over twelve months (building on the 2.7% fall last year). Meanwhile, private salaried employment increased 13.9% YoY in the quarter (-17.5% in corresponding quarter of 2020). Overall, formal salaried employment (public and private) is around 6% down from pre-pandemic levels, diverging from administrative data (number of pension contributors) that suggests formal salaried employment has fully recovered.

While the job recovery is advancing, continued fiscal transfers are a likely deterrent for a swifter labor force rebound. The unemployment rate is around 2pp higher when considering inactive individuals that would potentially return to the labor market. Overall, labor force participation remains low at 56.2%, compared to around 63% pre-pandemic. Nevertheless, the introduction of job subsidies (paid directly to the employee and in conjunction with the general fiscal transfer), along with the consolidation of the economic reopening, including the operation of daycare facilities and schools, a quicker labor force rebound ahead (particularly for women) is likely. While we expect the Central Bank to accelerate the pace of monetary stimulus withdrawal later today amid faster-than-anticipated momentum in the economy, the Board would likely continue to convey a preference of retaining an expansionary stance over the policy horizon to aid a full labor market recovery.

Andrés Pérez M.
Vittorio Peretti