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08SANTIAGO1151 2008-12-24 17:09:00 UNCLASSIFIED Embassy Santiago
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1. SUMMARY: Chile's new Labor Minister, Claudia Serrano, faces
pressing challenges in creating--or at least maintaining--jobs
despite the economic slowdown, resolving a public policy dispute
about Sunday and holiday pay, and implementing ambitious reforms to
Chile's pension system. The private sector is nervous about a
potential rise in unemployment. Workers, however, seem to be
unlikely to compromise, with most saying that they are unwilling to
take a temporary pay cut to avoid job losses and government workers
having recently won a 10 percent wage increase. END SUMMARY.



2. New Labor Minister Claudia Serrano, who took office December 15
(Ref A), faces a significant challenge in combating the threat of
rising unemployment as a result of the global financial crisis.
Immediately after Serrano's swearing-in ceremony, President Bachelet
announced the formation of a new National Employment Commission, to
be presided over by Minister of Interior Edmundo Perez Yoma. The
commission will be charged with formulating Chile's employment
promotion policies in the wake of the economic crisis. Bachelet
emphasized the need to "coordinate with both the private sector and
workers' organizations to design strategies so that Chile's
unemployment rate doesn't reach double digits at the national

3. Ministry of Labor official Enrique Perez Mendoza told Poloff and
Pol Specialist December 22 that employment statistics have been
relatively steady so far, but are likely to drop in May or June as
seasonal workers currently working on farms may have difficulty
finding work during the Chilean winter. Perez stated that Serrano
should ensure that job creation programs actually make an economic
contribution to society, rather than just providing subsidies to
idled workers or engaging them in unproductive activity. (Note:
Perez is President of the Santiago branch of the Association of
Ministry of Labor Professionals (APU), a union for professionals
within the Labor Ministry's Labor Directorate. End Note.)




4. Perez highlighted the controversy over "semana corrida" pay as
one of the most pressing issues confronting the new minister. The
lowest stratum of Chilean workers--who often have "flexible" wages
that vary by day according to output--are legally entitled to extra
pay on Sunday and holidays equivalent to what they earn in a typical
workday. This practice is designed to ensure that even low wage
workers can take one day off each week while minimizing the
financial impact of this break. This provision does not apply to
salaried workers. However, some unscrupulous employers have
circumvented this rule by paying their workers a nominal base wage
to supplement largely output- or bonus-based compensation. They
then claim that, as "salaried workers," their employees are exempt
from Sunday and holiday provisions despite earning the overwhelming
majority of their wages in a flexible manner.

5. In an attempt to try to correct this loophole, the Chilean
Congress included a provision in its 2008 Minimum Wage Law which
said that anyone who receives flexible wages--such as bonuses, tips,
or piece-rate wages--must also receive semana corrida payments on
the flexible portions of their wages for Sundays and holidays.
Perez stated that at the time the law was drafted and passed,
parliamentarians didn't realize that this provision would affect
large numbers of Chilean employees--particularly in the construction
and retail sectors--who have base wages above the minimum of 159,000
pesos (approximately USD 250) per month.

6. Employers, many of whom fear that Chile will begin to suffer
seriously from the global financial crisis in the coming months, are
crying foul and asking the government to revise the law. Perez
reported that one study by the retail association indicated that
salary costs in the sector could rise by 15 percent when this
provision of the law takes effect in January 2009. Some retail
companies have already announced that they will enact more
conservative employment practices in anticipation of lower
consumption. Finance Minister Andres Velasco is said to be
sympathetic to these concerns and is also calling for changes to the



SANTIAGO 00001151 002.2 OF 002

7. Serrano also inherits Chile's ambitious social security reform
effort, one of the most significant reforms that the Bachelet
government proposed (Ref B). In January 2008, the Chilean Congress
passed a comprehensive reform package designed to extend coverage,
increase the minimum pension, reduce costs, and create incentives
for additional voluntary savings. The task of implementing this
major reform will fall largely to Serrano and her successor.



8. Serrano faces the serious challenge of protecting workers'
interests while also being flexible and realistic as the global
financial crisis makes itself felt in Chile. While many Chilean
business owners fear that a significant rise in unemployment is
inevitable, workers do not seem to be worried, or at least are not
willing to make personal sacrifices in exchange for greater job
security. A recent study by the University of Development found
that about only 26 percent of workers would be willing to take a
temporary pay cut in order to avoid being laid off. And Chile's
unions are in no mood to bargain, particularly given that civil
servants just won a 10 percent pay raise (Ref C). Finding common
ground between workers, government, and employers on the issues of
job creation and the Sunday/holiday pay issue will be a tall order
for the new minister. End Comment.