Chile Unemployment Hits 8.9% as Kast Pension Cuts Erupt

Chile unemployment at 8.9% and a simultaneous pension-cut scandal have handed President Kast his first serious governing crisis barely seven weeks into his presidency.

Two crises landed on the same day in Santiago. Chile unemployment surged to 8.9% in the first quarter of 2026, with 925,000 people out of work and formal job creation turning negative for the first time since the pandemic. The Rio Times, the Latin American financial news outlet, reports that the data arrived alongside a leaked government budget memo revealing planned cuts to pensions, children’s programs, and indigenous-community funding — a combination that has shaken public confidence in the seven-week-old Kast administration.

Labor Minister Tomás Rau was briefed on the unemployment figures during a live event at business group Icare. He called the results unacceptable and said the number of jobless people had risen from 862,000 to 925,000 in twelve months.

What the Chile Unemployment Data Shows

The INE data reveals a labor market that is deteriorating in quality, not just quantity. Only 45,354 jobs were created in twelve months — a growth rate of just 0.5%, the weakest since mid-2025. All net new jobs were informal. Formal private-sector employment actually contracted, marking the first such decline since April 2021 during the pandemic.

Women bore the heaviest burden. Female unemployment reached 10%, up 0.5 percentage points year-on-year, as the female labor force grew faster than opportunities. In the Santiago Metropolitan Region, unemployment climbed to 9.6%, with sharp declines in information technology, financial services, and public administration.

Informal employment now represents 26.5% of total jobs, rising 0.7 percentage points in a year. Economists at Clapes-UC and La Tercera warned that unemployment could breach 9% in the next quarter if formal private-sector hiring does not recover. The pattern is clear: Chile’s structural employment crisis is deepening under austerity, not improving.

The Pension Cut Scandal

Investigative outlet CIPER revealed on Tuesday that the government’s 2027 budget preparation included a 15% cut to the Pensión Garantizada Universal (PGU), Chile’s universal pension supplement that reaches approximately 2.3 million elderly citizens. The same memo proposed discontinuing 142 social programs.

La Tercera reported that Finance Minister Jorge Quiroz had already signed a decree cutting nearly 33 billion Chilean pesos from the Social Development Ministry, affecting programs for children, indigenous communities, and youth. Quiroz went public Wednesday to insist that no social benefits would be touched, but the signed decree contradicted his words.

An emergency meeting at La Moneda — attended by the interior, finance, and housing ministers — acknowledged the leaked memo as a traspié. President Kast himself was confronted by health workers in Temuco who demanded publicly that no cuts be made to their sector. The Kast reform agenda had already faced criticism for its planned $6 billion in spending cuts; the pension leak makes that agenda politically explosive.

What This Means for Kast’s Agenda

The simultaneous arrival of terrible jobs data and a pension-cut scandal creates a political trap. Kast’s entire economic thesis — cut taxes, slash spending, attract investment, grow at 4% — depends on the public accepting short-term austerity for long-term gain. But when austerity means cutting pensions for elderly Chileans while unemployment rises to nearly 9%, the social contract frays.

His approval rating has already fallen from 59% at inauguration to 33% in the latest Pulso Ciudadano poll. The University of Concepción announced separately that federal funding for its Talentos Académicos program — gifted education for low-income students — was eliminated from the 2026 budget entirely.

For investors, the combination is a warning. Chile’s investment thesis under Kast was built on fiscal discipline attracting capital.

But fiscal discipline that produces social unrest — Chile remembers 2019 — carries its own market risk. The IPSA, which delivered 56% returns in 2025, now prices in a reform agenda that may not survive its first encounter with public anger.