According to the INE’s labor market survey, employment fell by 0.4% MoM/SA in December, the sharpest monthly drop since 2021. Labor supply on a seasonally adjusted basis fell by around the same magnitude, building on prior months of declines, an indication that despite improving activity data, job openings remain limited and job seekers lose hope. As a result, the unemployment rate (SA) steadied at an elevated 8.5% (NAIRU estimated between 8.0-8.5%). The unemployment rate in 4Q24 came in at 8.1% (in line with our call; Bloomberg 8%), leading to the 2024 rate averaging 8.5% (8.7% in 2023). The informality rate fell to 26.4%, down by 1pp YoY, and below the 2018-2019 average (28.3%).
Flows in the labor market grinding to a halt… Data from the Labor Directorate has shown a decline in layoffs based on firms’ needs, suggesting most of the adjustment in the formal market have already taken place. Separately, unemployment insurance beneficiaries have stabilized at similar levels from last year, even declining at the margin. Labor demand proxies remain well below pre-pandemic levels.
Our take: With signs that investment will gradually recover in 2025, led by mining, the spillover effects into the rest of the economy may boost private sentiment and support a gradual improvement in labor market dynamics. However, over the past few years several reforms have raised the cost of labor in Chile (flagged by the BCCh in the December IPoM), with an additional increase stemming from the recently approved pension reform, which may contribute to lower labor demand. With the unemployment rate trending slightly above the NAIRU, weak labor demand, additional pension contributions to be paid out nominally by the employer are likely to reduce wage growth, keep labor demand low, and add pressure towards higher informality over time. We expect the unemployment rate to average 8.5% in 2025. The INE will publish labor market data for the quarter ending in January on February 28.
