Itaú BBA - CHILE – Labor survey revamp results in higher historical unemployment

Macro Latam

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CHILE – Labor survey revamp results in higher historical unemployment

Fevereiro 28, 2020

A further labor market loosening is expected amid low growth.

The unemployment rate in the quarter ending in January increased 0.3pp over one year to reach 7.4%, as the labor market loosens following the 4Q19 social unrest that affected activity and business sentiment. The unemployment rate came in above the Bloomberg market consensus of 7.3% and our 7.2% call. The data publication coincides with a methodology update, which includes new population expansion factors derived from the 2017 census as well as other technical improvements to the survey. In the Santiago Metropolitan area, the labor market followed a similar pattern (unemployment up 0.4pp to 8.0%). To date, the rise in the unemployment remains mild considering the significant disruption to operations in 4Q19 and the subsequent effect that had on business confidence. However, we note that the highly atypical spike in inactive individuals that would potentially be participating in the labor force (i.e, inactive individuals who would take a job upon an offer) could be anticipating a sharper rise in unemployment going forward.

While employment recovers, it remains to be seen if the economy can absorb workers seeking to enter into the labor force. Employment grew 2.1% yoy in the quarter, up from 1.9% in 4Q19, but well below the 3.3% gain in 3Q19 when the labor market was evolving favorably just prior to the protests. Nevertheless, the unemployment widening was due to the labor force acceleration to 2.5% yoy (1.8% in 4Q19; 3.2% in 3Q19). Participation also ticked up 0.2pp over twelve months to 63.4%, the first gain since 3Q19 in the new series. Job growth was led by retail and professional activities (both likely related to self-employment), along with construction (which is unlikely to endure). Meanwhile, notable job destructors came from the education sector and IT.

The update to methodology led to an average increase of 0.2pp to annual unemployment since 2010, in part due to a higher average participation rate (+2.4pp) during that period. The higher participation rate has to do with the 2017 census reporting a younger population relative to that forecasted on the back of the 2002 census (which until December 2019 was used to expand the labor survey). Specifically, 65% of the working age population (15+ years) has between 15 and 49 years of age, above the 57% previously estimated. Part of the sharp revision to participation is due to the large inflow of immigrants to Chile over the last five years.

As domestic conditions remain uncertain, a labor market recovery is not on the cards. We expect an increase from the 7.2% average unemployment rate recorded last year to near 8% this year.

Miguel Ricaurte
Vittorio Peretti

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