How long until jobs in Chile recover to pre-pandemic levels

RIO DE JANEIRO, BRAZIL – Job recovery is slowing in Chile. The unemployment rate reached 7.8% between January and March of this year, down from previous quarters, evidence of the economy’s loss of momentum.

“It should not be surprising that the unemployment rate continues to increase due to seasonal reasons and the recovery of labor participation in the face of a greater degree of openness in the economy. This, given that job creation, although dynamic, will be difficult to capture the entire labor force,” said a report by Scotiabank Chile’s economic team.

The unemployment figure, released on April 28 by the National Statistics Institute (INE), was within the range expected by the market. It was not a negative percentage, as compared to the January-March 2021 quarter, the unemployment rate decreased by 2.6%. Twenty-nine thousand jobs were created (75.9% destined for men and 24.2% for women).

“Progress continues to be made in terms of employment even though it will occur in months in which the activity tended to stabilize; I think these are positive figures”, said the Minister of Finance, Mario Marcel.

However, Chile has not yet managed to equal or exceed pre-pandemic levels, as there are still 290,000 jobs to be recovered to return to pre-March 2020 records. That is without considering that during the last two years, the number of working-age people in the country has increased. It is estimated that, in total, approximately 480,000 jobs remain to be created.

THE ORIGIN OF THE REDUCTION IN FORMAL EMPLOYMENT

In Chile, there was an increase in unemployment determined by the 2019 social conflict and the arrival of Covid-19. “During 2021, the country reduced the employability rate of 15%, which is approximately 1,000,000 jobs. Now, we cannot consider that this mass of people is really without a job; it is only an accounting at a formal level because we do not have the certain hard data of how many of those people are working informally,” Alvaro Acosta Corvalan, director of corporate finance at OpenBBK, explained to Bloomberg Línea.

His opinion is that this situation is relevant, mainly because it lowers the level of employment. In Chile, economic activity -measured through the IMACEC- has been registering significant increases since the second half of 2020, obtaining a year-on-year increase of 7.2% in March. The analyst believes that it can be deduced that the job vacancies correspond to the formal sector since the mass of people is exercising economic activities that are not being regulated.

THE WAY TO RECOVER JOBS

The recovery of jobs is related to economic growth. “The more an economy grows, the more employment increases. This is true in all parts of the world; in some countries, the impact is more direct, and in others, it is not so directly proportional, but in general, the equation holds true,” says Acosta.

In Chile, the rate of economic growth directly impacts the labor market, similar to the case of the United States. “For every point that the Chilean economy grows below its potential, unemployment increases by 0.2% to 0.4%.”

His projection, based on the “most acidic” growth estimate for 2022 and 2023 put forward by the World Bank, is that Chile would grow net by only 1.8%, fundamentally due to the scenario it is currently experiencing.

Even though the nation has high employability rates compared to Latin America, the director of corporate finance at the firm OpenBBK does not see that full employment could be reached at least this year and not in 2023 either. “In addition to the above, the new government is strongly pushing labor strategies that make the development of the activity even more uphill with laws to reduce working hours, increase minimum wages, and others that do not make this recovery more efficient,” he said.

On the other hand, Clapes UC considers several different scenarios for economic growth. Thus, it sees a full recovery possible in the middle of this year if the economy expands close to 3%, which – it clarifies – would not be within the “feasible” options. But in a less favorable scenario, where growth oscillates between 1.5% and 2%, the recovery could be at the end of 2022 and up to mid-2023.

With information from Bloomberg Línea