More but not better jobs in Chile: The Fundamental Importance of Open-ended Contracts Jaime Ruiz-Tagle and Kirsten Sehnbruch Santiago ILO, 18 th November.

More but not better jobs in Chile: The Fundamental Importance of Open-ended

Contracts

Jaime Ruiz-Tagle and Kirsten SehnbruchSantiago ILO, 18th November 2013

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History of the Paper

• Born out of a commission to measure the “quality of employment”

• And out of a concern that variables related to the quantity and quality of employment behave very differently

• The importance of Chile as a case study in the region: best case scenario over 20 years but still with significant problems

• Economic growth in a stable legislative environment, but de jure and de facto contractual conditions behave differently

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Overview• Overview of the Chilean labour market• The impact of labour market variables on the ability

to generate income and maintain employment• Presentation of this analysis with conclusion that

open-ended contracts are fundamental to the quality of employment

• Discussion of public policy implications

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History of LegislationLabour legislation has been a very disputed issue

with strong historical “baggage”Legislation “fleixibilised” in 1979 and early 1980sRenegotiation in 1990 under Pres Aylwin, which

raised severance pay and attempted to revive unions under very limited conditions

1990 use of (short-term) contracts begins to change

After that, agreement only achieved on non-contentious issues such as ui and 45 hour working week

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The politics of reform

• Governments focused on the “achievable”• Labour movement was “contained” through political

negotiations and reform• Business sector remained focused on flexibilisation Result: a focus on the promise of economic growth

rates as a solution to labour market problems Reforms: how far can you go without structural

change?

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Data problems• Pre 1990: almost no information• 1990-1996: data on formal contacts (yes/no)• 1996- present: data on types of contracts, but with

changing survey questions and definitions• Since 2002: administrative data from ui system• Since 2009: administrative data from ui system

covers most of the formal wage-earning labour force• Since 2010: type of contract included in official

labour force survey

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A Puzzle with missing pieces:Labour market trends

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Evolution Occupational Status

Occupational Status 1996 1998 2000 2003 2006 Open-ended contracts 46,4 46,4 46,8 44,2 43,5 Atypical contracts 9,7 9,1 9,7 11,2 12,9 No contracts 20,0 20,5 19,4 20,2 18,9 Employers 3,7 4,1 4,3 4,0 3,1 Prof. self-employed 2,0 2,6 2,6 2,9 3,2 Self-employed 18,3 17,4 17,2 17,6 17,4 Total 100,0 100,0 100,0 100,0 100,0

Source: Authors’ own calculations with Casen Data, 1996-2006.

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Empirical Evidence ChileChilean Labour Force by Occupational Status, 2009 – 2012NENE

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Type of ContractUI System

Type of Contract, % of total contributors 2002 2003 2004 2005 2006 2007 2008 2009 2010 Open-ended contracts 21.6 37.0 46.4 51.4 55.6 58.4 61.2 64.1 62.4 Atypical contracts 78.4 63.0 53.6 48.6 44.4 41.6 38.8 35.9 37.6

Total labour force 100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

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Rotation of Formal Contracts

Type of Contract, % of total contributors

0-13 m

+13 m - 2 yrs

+ 2 - 3 yrs

+3 - 4 yrs

+4 - 5 yrs

+5 - 6 yrs

+6 - 7 yrs Total

Open-ended contracts 19.8 10.0 7.5 5.4 4.2 3.4 3.0 53.3 Atypical contracts 38.6 5.1 1.7 0.6 0.3 0.2 0.1 46.7 Total labour force 58.4 15.1 9.2 6.1 4.5 3.6 3.2 100.0

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Relevance of Occupational Status

• Based on multivariate analysis• Considering different ways of measuring the

quality of employment (eg. aggregation of variables or Alkire Foster methodology)

• Which are the main variables that affect a worker’s ability to maintain (or find) employment and to generate income?

• Which variables can be changed and which cannot?

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Results: job loss and income generation• Women face a greater chance of job loss than men• Education mixed• The young and the old (over 40)• Short-term contracts ****• The less specialized (economic sector and type of contract)• Lower wages• No contributions• No Vocational training• Not head of household• Larger firms

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• “We measure what we believe in” (Somavia)• “We ignore what we don’t measure” (Ward)

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Policy Conclusions

• Focus on measurement of occupational status• Focus on increasing open-ended contracts• And/or eliminating differences between

different types of contract• The question of severance pay?

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A Suggestion:Carrot and Stick• Outlaw practice of Multirut rotation• But also disincentivise it:– Stagger contributions to unemployment insurance

and pension systems

• Progressively replace severance pay with unemployment insurance

• Consider the connections between social security systems and poor quality employment

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The Self-employed

• Most stable employment conditions, but with income fluctuations

• Two categories: average and low incomes• Only the very low income cannot be formalized in a

country with institutions such as Chile’s• If the low income self-employed can charge VAT, they

can also be made to contribute to social security• Provide incentives for social security contributions:

– Pension or health benefits– Insurance against disability, illness or accidents