Chile - The Labor Force and Income Levels

The labor force and income levels

With a lower rate of population growth, Chile's working- age population, which includes all those individuals more than fifteen and less than sixty-five years of age, represented 64 percent of the total population in 1992. The laborforce participation rate, or the ratio of those in the labor force over the working-age population, was 59 percent in August 1993; of the total population, 37 percent were employed or were seeking a job. Participation rates typically differ by age and gender. The young participate in smaller proportions and join the labor force as they leave the education system. Women have traditionally participated at lower rates also. The participation rate for men was estimated at 76 percent and that for women at 32 percent in 1992. These figures had increased since the early 1980s because of the relative aging of the overall population and a proportionately greater entry of women into the labor force. In the 1980-85 period, 74 percent of men and 26 percent of women over fifteen years of age had been active in the work force.

The rate of unemployment declined steadily throughout the 1987- 91 period. The overall rate of growth in employment for the 1987-91 period was 3 percent per year. The rate was higher from 1987 to 1989 (5 percent), the period of fast recovery after the economic crisis of 1982-83. The most dynamic sectors during the 1987-89 period were construction and manufacturing, with average rates of employment growth of 20 percent and 11 percent per year, respectively. Employment creation increased by 5 percent again in 1992, and by the end of the year unemployment stood at 4.4 percent. A greater than expected increase in the size of the labor force, mainly from women seeking employment, led to a slight increase in unemployment to 4.9 percent by late 1993.

The largest single component of the Chilean employment structure was services, a category that includes health workers, teachers, and government and domestic employees. Next was trade and financial services, including the real estate, banking, and insurance industries. Together with transportation and communications, these categories of the services sector of the economy employed 55.6 percent of the labor force. The most important of the productive activities in terms of employment was agriculture, forestry, and fishing, which employed 19.2 percent of the labor force. If mining is included, this means that 21.5 percent of the labor force was employed in what is typically considered the economy's primary sector. The manufacturing sector employed 16 percent of the labor force, roughly the same percentage as in the mid-1960s; manufacturing's share had declined to about 12 percent during the economic crisis of 1982-83. Employment in what is often considered the secondary sector of the economy amounted to 23 percent, if the percentages engaged in construction and in electricity, gas, and water were added to that in manufacturing.

In 1991 incomes had also almost recovered, for the first time in twenty years, to their 1970 average levels. During 1990 and the first months of 1991, workers' wages increased more rapidly than the national average. This probably resulted in some measure from the return to democracy that had enabled workers to exercise their rights more freely and from labor market conditions closer to full employment. Real incomes continued to rise during 1992 and 1993, reaching levels that surpassed the previous, but then unsustainable, peak established in 1971.

Nonetheless, the monthly wages of Chileans are, when expressed in dollars, much lower than incomes in the United States. According to these figures, which probably understate high incomes and overstate lower ones, an unskilled worker made less than one-tenth the amount an executive-Qoran administrator-director made. The purchasing power of these incomes for daily necessities was, however, higher than their dollardenominated equivalents suggest.

During the military government, unemployment rose well above its historical levels for the Chilean economy. There were two distinct shocks to the labor market. The first one took place around 1975 and can be related to the recessionary conditions created by anti-inflationary policies and to employment reduction in the public sector. The adjustment that followed was very slow. The second shock took place with the financial and economic crisis of 1982-83 and affected private-sector employment. From 1979 to 1981, the economy had entered into a recovery increasingly oriented toward production of nontradable goods, a pattern that was not sustainable given the speed at which international debt was being accumulated. In response to the devaluation of the Chilean peso in 1982 and the macroeconomic management that followed, the economy shifted gears and reoriented production to tradable goods and services. In 1982 the unemployment rate for the country climbed to 19.4 percent, or 26.4 percent if those participating in state-financed makeshift work programs are included. Yet the adjustment that followed took place at a faster pace. By 1986 the unemployment rate was 8.8 and 13.9 percent, respectively. Chile's unemployment rate returned in the early 1990s to levels that characterized the country in the 1960s.

The distribution of personal income is quite regressive in Chile in general and Santiago in particular, a tendency that became more pronounced during the military government. The data reveal that personal income in Santiago is strongly concentrated in the highest decile, which enjoys about 40 percent of the total income. They also show that despite the great changes in the Chilean economy during this period, the distribution of personal income remains rather stable, even though a somewhat greater concentration can be seen in 1989 than in previous years. The new policies on income and taxes of the Aylwin government were expected to slightly reverse this trend.

The distribution of consumption by household in Santiago showed a strong tendency toward the concentration of expenditures in the higher-income groups during the military government. The figures for the first two years of the Aylwin government show a small change in direction toward a more equitable distribution of consumption, although it is still significantly more concentrated in the richest quintile than in 1969. The data show that the richest quintile of households increased its consumption steadily from 1969 to 1989 but that it declined in 1990 and 1991. Moreover, by 1991 the bottom two quintiles had increased their share of consumption slightly at the expense of the fourth quintile. Hence, the distribution of household consumption was a bit more equal in 1991 than in 1988.

These results must be interpreted with caution. The distribution of household incomes is affected by the average number of income earners by household income levels, and in times of economic crisis the poorer segments may be forced to rely on the income of fewer household members. This apparently happened in Chile in 1983, when there were only 1.1 income earners in the poorest 20 percent of families; in the 30 percent of families with middle- to lower-middle incomes, there were 1.4 income earners; in the 30 percent of households in the middle- to high-income group, there were 1.7 income earners; and in the top 20 percent, there were two income earners per household. Because their incomes were also higher, the concentration of consumption in the high-income families was magnified. Similarly, the expansion of secondary school enrollments during the 1980s benefited the children of poorer households, but it may have deprived them of the income derived from youth employment.

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