The following OECD assessment and recommendations summarise Chapter 5 of the Economic Survey of Chile 2005 published on 4 November 2005.
Boosting labour productivity is vital to improve relative living standards
Chile’s income gap relative to the OECD area reflects not only a deficit in labour utilisation, owing to relatively low labour force participation, particularly for females, but more importantly, lower labour productivity, which has risen over time but continues to lag behind that of OECD countries. Anecdotal evidence suggests that in mining and some agribusiness activities, now among the most dynamic sectors in the economy, labour productivity is already on a par with the best performers in the OECD area. The challenge is to raise productivity elsewhere in the economy, including in services through human capital accumulation, on and off the job. In particular:
Educational attainment has increased but performance remains poor in comparison with OECD countries. The government is aware of the weaknesses in this area and has taken measures to address them. Government spending on education is on the rise, facilitated by the interest dividend arising from continued prudent fiscal management and the ensuing reduction in public indebtedness. Options for facilitating access by the low-income population to higher education include a recently approved reform of student loans, extending government guarantees for loans from private banks. This is important because returns to education are estimated to be high. Policies should aim to raise educational standards to the level of international top performers as a means of accelerating Chile’s catch-up with the more prosperous countries in the OECD area. But an increase in outlays will deliver stronger performance only if maintained over time and accompanied by monitored improvements in the quality of teaching.
The availability of labour training financed through tax rebates and, more recently, the increase in grants for small enterprises in lieu of tax relief, are steps in the right direction. But such incentives would still fail to reach some groups of self-employed persons and their family members, who are most likely to be outside the formal labour market and for whom the return on investment in human capital accumulation is likely to be low. While the scope for subsidising job-related training is debatable, policies should continue to focus on improving the quality of labour training and governance in service delivery.
Attainment has improved, but the quality of education remains low
1. Percentage of the population in each cohort that has attained at least upper-secondary education. The reference year for Argentina and Brazil is 2001.
Source: OECD, Education at a Glance (2004a), and PISA+ 2000.
Labour force participation needs to rise
To lift labour force participation, which is low by international standards, even among prime-age males, greater flexibility is needed for the allocation of working time. Part-time work is important for a significant group of female employees and the availability of good-quality, affordable childcare and pre-school education could encourage labour force participation in the case of families with dependent children. Regulations on full-time work should allow working time to be reduced by any number of hours, and not necessarily by up to one-third, a limit that currently triggers some special provisions. Moreover, reform of legislation would be welcome in the case of labour dispatching and subcontracting. Based on current practices, client enterprises are responsible for work supervision, while the dispatching firm retains a legal role as an employer. It is advisable to introduce legislation to formally clarify these responsibilities. At the same time, strengthening the legal framework for subcontracting could encourage a more widespread use of flexible labour contracts.
Participation ratios are low, especially for women, 2004
Source: OECD Labour Force database and INE.
Return to the Economic Survey of Chile 2005
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For further information please contact Chile Desk at the OECD Economics Department at email@example.com. The OECD Secretariat's report was prepared by Luiz de Mello and Nanno Mulder under the supervision of Silvana Malle.