Identifier | Created | Classification | Origin |
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08SANTIAGO1151 | 2008-12-24 17:09:00 | UNCLASSIFIED | Embassy Santiago |
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. FEARS OF RISING UNEMPLOYMENT -------------------------- 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 level." 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.) CONTROVERSY OVER EXPANDED "SEMANA CORRIDA" SUNDAY/HOLIDAY PAY -------------------------- -------------------------- 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 law. PENSION REFORM -------------------------- 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. COMMENT -------------------------- 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. URBAN |