Chile should invest more in employment and active social policies in order to reduce its high levels of income inequality and poverty, according to a new OECD report. (Chile is not an OECD member but began talks to become an OECD member in 2007)
OECD Review of Labour Market and Social Policies – Chile says that the country’s strong economic growth of the past two decades has helped cut poverty – from 39% of the population in 1990 to less than 14% in 2006. Standards of housing, education and health have also risen.
But income inequality remains higher than in OECD countries: The richest 10 % of the population have incomes which are 29 times higher than the incomes of the poorest 10%, compared with an OECD average which is 9 times higher.
More effective social policies are needed to spread the benefits of growth more evenly and reduce inequality, the report says. Labour market reforms to create more and better jobs are vital. Quick action would also help reduce the impact of the global downturn on the Chilean economy, with vulnerable workers facing a much higher risk of unemployment and more low income households at risk of drifting into poverty.
Young people and women in particular have difficulties finding work. Informal employment is less widespread than elsewhere in Latin America, but still high by OECD country standards. Many of the jobs created recently have also been in low-paid, low-productivity services.
To create more and better jobs, the report recommends that Chile:
Strengthen the role of the social partners in setting wages and working conditions to promote a more effective social dialogue and collective bargaining.
Enforce implementation of the new sub-contracting legislation.
Expand the employment insurance system but reduce the level of severance pay.
Invest more in employment services and job-related training.
Promote youth employment by making it less expensive to employ them and by further developing a system of apprenticeships.
The innovative approach to social policy has been successful in reducing extreme poverty but it does too little to help poor people get into employment and it will face a hard test now with a looming slowdown in growth. The time has now come to invest more in tackling poverty among the working-age poor, through activation, in-work benefits and greater child-care support, the report says.
Public spending on childcare and pre-school education is low, at about 0.1% of GDP in 2007 compared with an OECD average of 0.25%. Increasing childcare support would make it easier for more women to work. The in-work benefits scheme should be linked with childcare supports, for example, by paying out more for childcare where both adults work for more than 30 hours per week.