Chile - Income, Labor Unions, and the Pensions System

Income, labor unions, and the pensions system

The modernization of labor-market legislation during the late 1970s played a fundamental role in the subsequent performance of the Chilean economy. Included in this modernization were: reforms in the labor code that assign individual workers the right to seek representation in collective organizations, and a reduction in the cost of dismissals. Moreover, the financial reforms in social security and health care removed a major tax burden from the labor market, as it transformed social security and health care taxes into required basic health care programs. In addition, the reforms in the financing of education had a tremendous impact on the allocation of human resources and resulted in a significant growth of privately funded technical training programs. The financial aspects of these reforms directly affected the efficiency of the labor market. For example, pension funds became the largest institutional investors of the capital market, representing 26.5 percent of GDP in 1990.

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