OECD Economic Surveys: Chile 2018

Report

OECD Economic Surveys: Chile

26 February 2018

Chapter 2. Policies for More and Better Jobs in Chile

Abstract

Employment growth has been strong in the last decade. However, many jobs are of relatively low quality, affecting well-being and productivity. The segmentation of the labour market, with some benefiting from strong protection and others having precarious jobs without social security benefits or employment protection, has led to significant labour market inequalities. The employment rate is low for vulnerable groups, mainly youth and women. And when in employment, these groups tend to hold precarious jobs. A high share of the population lacks the basic skills and the mismatch between the supply and demand of skills is widespread. Overcoming these challenges will require policies to promote more permanent and formal jobs, such as better targeted training programmes and labour intermediation, and reducing the relatively high severance payments in permanent contracts while increasing coverage of unemployment benefits. The ongoing educational reform will improve skills outcomes, but greater efforts are needed to make the education and training system more responsive to labour market needs by improving relevance. In particular, developing an apprenticeship system linked to formal education and encouraging more work-based learning would improve quality of employment opportunities. Better skills assessment and anticipation information as well as greater efforts to involve employers in the education and training system would also help. Policies to boost female employment, such as expanding opening hours of childcare centres and continue with the efforts towards a universal early education, are also needed to reduce gender gaps. All these policies can create a virtuous cycle between labour productivity and equity, increasing access to higher quality jobs, higher wages, and coverage of pensions, training and unemployment benefits.

The performance of the Chilean labour market has been strong since the financial crisis in 2009 (Figure 2.1). Employment increased by 25% over 2009-16 and the average and minimum wages rose by 22% and 15% in real terms. The labour market was also resilient to the large commodity price shock in 2011, with the unemployment rate decreasing from 7.1% in 2011 to 6.2% in 2015. During 2017 the unemployment rate increased slightly reflecting the large slowdown in economic activity.

Figure 2.1. Progress in employment growth and wages has been impressive

However, the Chilean labour market faces several challenges undermining job quality. A high share of the population has very low skill levels, educational outcomes remain below OECD standards and are strongly linked to students’ socio-economic status. The segmentation of the labour market, with some workers benefiting from employment and social protection and others having precarious or less protected jobs, has led to increased inequalities and low labour productivity. Despite progress, labour force participation is still low, notably among women and youth. The mismatch between the supply and demand of skills is significant and under-skilling is particularly worrisome, highlighting not only a disconnection between the available and needed skills in the job market, but also a low level of available skills.

Strengthening job quality can foster productivity growth and increase workers’ well-being while reducing inequalities in the labour market (Cazes et al., 2015). Chile performs relatively well in different dimensions of job quality when compared to other emerging economies (OECD, 2015b). However, it performs relatively poor compared to other OECD countries (OECD, 2014b). The quality of earnings (measured by the average earnings and its dispersion) is low compared to the average OECD country (Figure 2). Relatively low average earnings and considerably higher levels of inequality weigh on earnings quality. Despite the dramatic improvement in real earnings, the level of earnings remains low at a third of the OECD average. This reflects, in part, low worker skills as well as a high share of precarious jobs.

The unemployment risk, which measures the probability of getting unemployed and the time spent in it, is similar to other OECD countries (Figure 2.2). However, unemployment insurance, as measured by the product of the coverage and replacement rates of public transfers received by the unemployed, is much lower than OECD average. Given such low levels of social protection, the low unemployment risk is likely to reflect the unaffordability of unemployment, suggesting that many workers may need to accept very low quality jobs when better jobs are not available (OECD, 2015b). This is explained by a high share of workers on precarious jobs with low or no access to social security benefits or employment protection.

Figure 2.2. Job quality is low compared to other OECD countries

The quality of the working environment, which captures non-economic aspects of job quality, has a direct impact on job productivity (Arends et.al, 2017). Chile has a high share of workers suffering from job strain characterised by a combination of high job demands and few job resources to meet those demands (56% compared to an OECD average of 41%).

The chapter discusses a wide range of policy measures to boost job quality and make the labour market more inclusive in line with the flexicurity concept, which emphasises the flexibility of labour markets while ensuring secure transitions for employees from one job to another. This involves policies to increase the coverage of unemployment benefits, improve training programmes and job placement, as well as promoting female employment. Reducing the use of temporary contracts and bringing workers into formal jobs can improve pay and working conditions while helping to boost productivity. Reforms to boost export performance and enhance productivity, such as enhancing competition and increasing investment in innovation, can help to support business growth and employment and lay the foundations for more and better quality jobs (Chapter 1). Lifting job quality and productivity will also require improving the relevance of education, continuing the modernisation of the vocational education and training system and better aligning tertiary education with labour market needs. The business sector has an important role to play in these endeavours through its input into curricula and training design and providing apprenticeship opportunities while improving on-the-job training for its workers.

The Chilean labour market faces several challenges

Informal and temporary jobs weigh on well-being and productivity

A high share of jobs is of relatively low quality: informal or temporary (Figure 2.3). The share of temporary contracts, although decreasing since 2012, is the highest among OECD countries. Informality, as measured by the lack of social security, is also important, although among the lowest in the LAC region. The share of informal wage earners at 24% has been decreasing, explained partly by the rise of other non-standard employment arrangements, such as outsourcing or self-employment (Perticara and Celhay, 2010; Ministry Labour, 2017b). Self-employment in low skill occupations, often associated to informality, low access to protection or social benefits and low productivity, is high at 15% of total employment in 2010-16 and accounts for an increasing share of employment. Part of this increase is cyclical given the strong deceleration of economic activity following the large commodity price shock, and will be probably partly reverted in the next years as activity gains momentum.

Figure 2.3. Temporary and informal jobs account for a large share of employment

Youth and women are most affected by precarious work (Table 2.1). Women are less likely to have paid work than men and, when employed, they hold more frequently non-standard jobs: work more often in the informal sector, self-employed or in low-paid jobs. Access to quality jobs is also difficult for young and low-skilled workers who are often trapped in informal, temporary jobs, or joblessness.

	Chile		OECD	Mexico	Brazil
	2010	2016	2016	2016	2015
Labour force participation	65	67	72	64	71
Female	52	56	64	47	61
Employment rate	59	66	67	61	58
Female	48	52	59	45	54
Below upper secondary	60	62	57	64	65
Upper secondary	70	72	74	70	74
NEET (15-29)	19	18	14	22	22
Self-employment in low-skilled jobs	16	16
Female	18	19
Below upper secondary	24	26
Informal wage earners	27	23		62	23
Female	32	27		58	20
Youth (15-24)	41	35		76	35
Below upper secondary	39	32
Fixed-term	29	28	11
Female	27	29	11
Youth (15-24)	47	45	24
Below upper secondary	39	36
Unemployment rate	8	7	6	4	10
Youth (15-24)	18	16	13	8	23
Prime age (25-54)	7	6	6	3	7
Old age (55-64)	4	4	5	2	4

Note: Informality refers to dependant employees with no pension’s contributions, no written contract, no unemployment benefits or no health insurance, as % total wage earners. Self-employment in low skilled jobs is defined according to ISCO-08 occupations: service and sales workers; craft and related trades workers; plant and machine operators and assemblers; elementary occupations. For Mexico and Brazil the informality rate comes from SEDLAC and is defined as those with no contributions to the pension system.

Source: OECD Labour Force Statistics, Labour Force Survey for Chile (ENE) and SEDLAC.

Statlink

Informality and short-term contracts weigh on workers’ well-being and productivity. Workers in informal (wage earners or self-employed) and temporary jobs earn less than workers in ‘standard’ jobs, even if they have similar backgrounds and characteristics (ILO, 2016). OECD calculations show that the hourly wage penalty of temporary workers in Chile is 15 percentage points (attributed to the type of contract all else equal), while for informality is 30% (after controlling for worker and job characteristics). They also have lower access to training penalising human capital accumulation (Carpio et al, 2011). Labour market insecurity for temporary and informal workers is much higher than for permanent workers (OECD, 2014b; OECD, 2015b). This is explained by temporary contracts and informal jobs leading to unstable employment careers with high job rotation (Gonzalez and Hunneus, 2016; Box 2.1).and are often not entitled to severance payments or unemployment insurance, and informal workers do not pay social security contributions, weighing on public finances and their well-being (Binell, 2016; Gasparini et al., 2014; Maurizio, 2013). Firms relying heavily on highly flexible forms of labour contracting are less likely to innovate, offer training to their employees and have problems raising worker’s motivation and effort, reducing labour productivity (Battisti and Vallanti, 2013; Perry, et al., 2007). A high share of self-employed in low productivity jobs, being often informal, can also hold back productivity growth. Indirect evidence of weaker productivity of the self-employed workers is their significantly lower earnings relative to employees (20% less than a wage employee with the same skills and experience, Barrero and Fuentes, 2017).

Low skill levels and high skill mismatches hold back job quality

Raising skill levels would help develop more productive and higher quality jobs. The skill level of Chileans lags behind other OECD countries. The share of adults who score at the lowest levels of proficiency in literacy, numeracy and problem solving in technology-rich environments is considerably larger than the OECD average (Figure 2.4; Quintini, forthcoming). Conditional on being employed, skills significantly increase the chances of workers obtaining permanent jobs (Panel B). The positive effect of literacy proficiency on earnings is also large in Chile, even after controlling for education attainment (Quintini, forthcoming).

Figure 2.4. Higher skills are needed to enhance job quality

Box 2.1. The ins and outs of employment in Chile

Chile’s labour market has frequent flows between formal and informal jobs (Table 2.2). Flows out of informal jobs are far more common than those out of formal jobs. A considerable share of informal workers makes the transition into formal jobs every quarter. 45% of these transitions are into formal fixed-term contracts and a high share of informal workers moves into self-employment within a quarter. For the self-employed it is very difficult to move to a permanent job, and they have a high probability of remaining self-employed. Once out-of-work (unemployed or inactive), if able to get an employment, it is an informal or temporary job or self-employment.

t t-1	Permanent contract	Temporary contract	Informal	Self-employed	Unemployed	Inactive
Permanent contract	82	6	6	1	2	2
Temporary contract	25	46	12	3	6	8
Informal employee	15	12	43	10	5	14
Self-employed	2	9	9	61	3	14
Unemployed	6	15	15	9	25	28
Inactive	1	2	5	5	4	81

Note: Average 2010-2016, %. Transitions from A to B between t and t-1 are calculated as the ratio of individuals moving from A to B between t and t-1 as a percentage of individuals in state A in t-1.

Source: OECD calculations using New National Employment Survey (NENE-Nueva Encuesta Nacional de Empleo).

Statlink

Developing better skills and using them effectively in the labour market can play a major role in revamping stagnant productivity growth in Chile and promote a more inclusive labour market. Skill mismatch emerges when workers are over-skilled for their current jobs as they are not able to fully utilise their skills and abilities in the job; or when they are under-skilled for their current jobs – they lack the skills normally needed for their job. Around 17% of workers are over-skilled and 13% are, under-skilled (Figure 2.5, panel A). Both measures are above OECD averages which are 10% and 4%, respectively. Under-skilling is worrisome in Chile, being one of the highest across the countries participating in the Survey of Adult Skills (PIAAC). Qualification mismatch is also widespread in Chile (panel B). 16% of workers report having higher qualifications than those required for their jobs – i.e. over-qualified – while 17% of workers have jobs where the required qualifications are lower – i.e. under-qualified. While the share of over-qualified workers is below the OECD average, the share of under-qualified workers is higher.

Figure 2.5. There is a large scope to make the skill allocation more efficient

Higher skill mismatch is associated with lower labour productivity through a less efficient allocation of resources. A higher share of under-qualified workers is linked with both lower allocative efficiency and lower within-firm productivity. At the macro-economic level, an inefficient allocation of skills implies lower aggregate productivity. Chile could boost its level of labour productivity by 14% if it were to reduce its level of skill mismatch to that corresponding to OECD best practices (Adalet McGowan and Andrews, 2017). Mismatch also carries economic and social costs for individuals, as mismatched workers tend have lower job satisfaction, earnings and employment prospects (Quintini, 2011; Montt, 2015). In particular, over-qualified workers experience a larger wage penalty in Chile than in other OECD countries, earning 18% less than their well-matched peers with similar qualifications (Quintini, forthcoming).

Tackling employment barriers is key to strengthen job quality

A high share of Chileans faces considerable difficulties in finding good quality jobs or entering the labour market (Figure 2.6). While the share of the population holding precarious jobs – working informally, holding unstable jobs, earning very little or working restricted hours (Box 2.2) – has been stable since 2009, the share of inactivity has significantly decreased due mainly to increasing female labour force participation.

Figure 2.6. A high share of the population faces labour market difficulties

Understanding the employment barriers of these vulnerable groups is key for the formulation and targeting of effective income and employment support policies (Fernandez et al., 2016). Common employment barriers (Box 2.2) in Chile include: low education, scarce formal job opportunities, lack of adequate child care and high commuting times (Figure 2.7). One salient feature is that all groups face similarly high commuting times, which is a proxy for the distance between the workers and high quality jobs, especially for low-income workers and women (RED, 2017; World Bank, 2017). Better urban transport can improve employment opportunities and hours of work for Chilean workers (Asahi, 2016).

Figure 2.7. Employment barriers in Chile

Box 2.2. Groups experiencing labour market difficulties and employment barriers

Using data from the National Socioeconomic Characterization Survey (CASEN), and considering only individuals aged 25-65 or 18-24 not in full-time studies, the population potentially experiencing labour market difficulties was defined as that either out-of-work or holding a precarious job defined as unstable jobs (all those jobs being not permanent) or informal jobs (not affiliated or contributing to the pension system) or having very low earnings (monthly labour income is lower than the first decile) or jobs with restricted hours (working less than 20 hours a week).

Following Fernandez et al. (2016) a set of empirical indicators was constructed to identify the employment barriers faced by the population experiencing labour market difficulties.

Employability. Low education: individuals facing this barrier have achieved less than upper secondary education as the highest educational level. Care responsibilities: individuals face care responsibilities when they have a family member who requires care (child aged 13 or less in part-time childcare/education or adult suffering disability or a disease) and are either the only potential care giver in the household, or the only person in the household who is economically inactive or working part-time because of care responsibilities. Health limitations: individuals face health limitations if either they declare that the main reason why they don’t work is for health reasons or if they declare they have a long term disease.

Motivation. High non-labour income: individuals face this barrier if the equivalised household income subtracted the individual’s labour income (e.g. other income sources not depending on the her/his own work, such as labour income from other household members, benefits, inheritances or rents) is higher than 1.6 times the median of the variable.

Opportunities. Scarce formal job opportunities: individuals face lack of formal opportunities when their probability of being informal is 1.6 times the median probability given the individual’s gender, age, educational attainment and region of residence and household characteristics (number of children, working spouse). High commuting time: individuals face high commuting times if the estimated time (using Heckprobit estimation) from work to job is higher 1.6 times the estimated time according to the place of residence and age, gender.

Source: Garda and Undurraga, “Employment barriers of the vulnerable in Chile”, forthcoming

Workers can be grouped according to the employment barriers they face and be targeted with policies aiming at tackling the specific barriers. Around 40% of the workers facing labour market difficulties are older male workers with unstable or informal jobs with very low work capabilities and scarce formal job opportunities. Improving the coverage of unemployment benefits is important for this group of workers which are frequently jobless. In parallel, training and education policies should be targeted to this group, while improving incentives for formalisation and permanent jobs. Another 15% are young inactive mothers with secondary education facing mainly child care problems, high commuting times and scarce job opportunities. 5% are young mothers with very low education, inactive or holding unstable and informal jobs. The authorities have taken measures to increase coverage and quality of childcare (see below). Continue to expand childcare solutions and policies to improve, or subsidise, public transportation are key to fully integrate them into the labour market. The Ministry of Labour, with the help of the IDB, is currently running a pilot to identify employment barriers among registered unemployed by self-reporting. The results should guide further development of policies in this area.

Labour market policies to enhance job quality

Rebalancing employment protection

Decreasing labour market rigidities would generate more permanent and formal jobs (Di Porto et al., 2017; IDB, 2015; OECD, 2008). An efficient employment protection provision should provide sufficient flexibility to allow for the efficient reallocation of workers while reducing an excessive reliance on temporary workers or other atypical relationships, such as informality. Employment protection legislation on open-ended contracts is relatively restrictive in Chile (Figure 2.8). Reducing the costs of dismissing a permanent worker, notably the high severance payments, would increase the chance of workers obtaining permanent contracts and, hence training, increasing productivity and wages. It would also facilitate better job matches and mobility of high-ability workers towards innovative firms (Adalet McGowan and Andrews, 2017). An alternative would be to introduce a contract with employment protection increasing with tenure, as done in Italy and Spain (OECD, 2017c; OECD, 2017d). This would reduce income disparities, given that temporary and informal workers have both the lowest salaries and the lowest levels of protection.

Figure 2.8. Employment protection of regular contracts is restrictive

Index scale of 0 to 6, from least to most restrictive, 2013¹

Reforms to the employment protection legislation should be accompanied by a more effective social safety net for the unemployed and more efficient on-the-job training, placing and re-skilling policies. The unemployment benefit system, which is based on individual accounts with complements from an insurance fund (Solidarity Fund), assures that the worker saves to protect himself from losing a job and avoid work disincentives when employed under formal contracts (Reyes et al., 2010; Hartley et al., 2011). The system was improved in 2015, when the replacement rate was raised from 50% to 70% in the first month of unemployment, decreasing to 30% up to the 7th month (from 20%). Measures also eased access to the Solidarity Fund, by simplifying inscription to the system, slightly increasing the take-up rate.

However, the coverage and benefits of the unemployment system remain limited (Sehnbruch et al., 2017). In 2016, 6% of the unemployed used the Solidarity fund, and 25% accessed unemployment benefits. The reasons are the short duration of the employment contracts and high job rotation in Chile (Gonzalez and Huneeus, 2016; CB, 2016; Sehnbruch et al., 2017), and the fact that self-employed, employers and workers without written contract are not covered by the unemployment insurance system. Workers, who have not contributed to the insurance for at least 12 months in the case of open-ended contracts and six months in the case of atypical contracts, do not have the right to obtain payments from the system. To access the Solidary Fund, workers need to make 12 contributions over a 24 month period, with the last 3 contributions being continuous and from the same employer. The low take-up of the Solidary Fund is partly explained by a larger delay between the application and the payment with respect to the individual accounts (13 days difference on average) and the still restrictive conditions of access (Comisión Usuarios, 2017). Data reveals that only 50% of employees that terminate a contract in a year have enough contributions in their accounts to access benefits and half of the workers under fixed-term contracts have non-contributing periods lasting more than three months in 2015 which impedes their access to the Solidarity Fund (Sehnbruch et al., 2017).

Coverage should be increased to vulnerable jobseekers by reducing the required minimum contribution periods. This will probably lead to greater reliance on the Solidarity Fund, which could carry some moral hazard problems as workers might reduce job search efforts (Huneeus et al., 2012). However, a higher coverage of unemployment insurance can partially or totally replace other means of protecting workers, such as severance payments, while still having positive impacts on labour formality (Bosch, 2016), as previously not covered workers have higher incentives to look for formal jobs. Linking the unemployment benefit system to regional unemployment (instead of national as is today) is advisable given the large regional differences in terms of jobs and income (Garda and Undurraga, forthcoming). This should be implemented in parallel with a strengthening of on-the job training and active labour market policies, covering better the most vulnerable workers in the labour market (discussed below).

Curbing informality

Reducing informality is paramount to increase inclusiveness in the labour market, since vulnerable workers tend to more frequently be informal(Box 2.3 and Table 2.3). Tackling informality requires a comprehensive strategy, including policies to raise productivity, better incentives to formality, and training and education policies. Informality is partly explained by the voluntary affiliation to the pension system for the self-employed, with low and irregular income and myopia (OECD/IDB/WB, 2014). Informality is also a consequence of the high cost of hiring formal workers, wage and non-wage costs, relative to that worker’s labour productivity given their skills and employability (IDB, 2015). This is aggravated by weak active labour market policies, which match poorly workers with employers, and complex and restrictive regulations for firms leading them to remain informal.

As a % of employment within categories		As a % of employment in the sector
Total	30	Sector
Female	32	Agriculture, hunting and forestry	44
Age		Fishing	41
Youth (15-24)	32	Mining and quarrying	7
Prime age (25-54)	25	Manufacturing	31
Old age (55-64)	38	Electricity, gas and water supply	10
Education		Construction	32
Below upper secondary	43	Wholesale and retail trade	42
Upper secondary	25	Hotels and restaurants	37
Tertiary education	15	Transport, storage and communications	29
Self-employed	85	Financial intermediation	8
		Real estate, renting and business activities	22
		Public administration and defence	14
		Education	12
		Health and social work	16
		Other community, social and personal service activities	46
		Private households with employed persons	51
		Extra-territorial organizations and bodies	26

Note: Informal jobs are those with no affiliation or contribution to the pension system.

Source: OECD calculations based on CASEN 2015.

Statlink

A number of programmes promote formalisation. For example, the Pension Subsidy for Young Workers gives a subsidy for pension payments for young workers; and a hiring subsidy for firms hiring youth. Young workers can also complement this subsidy with the youth employment subsidy (Subsidio al Empleo Joven, see Table 2.4) targeted at workers aged 18-24 years-old from the 40% most vulnerable households, covering also self-employed workers who are up-to-date with pension contributions, and giving also a subsidy to firms hiring these young workers. These programmes are important to promote formality for youth (Centro de Microdatos, 2012) since the first job and its working conditions largely determine the employment and career paths of young people. Indeed, a formal first job improves the probability of being in subsequent formal jobs by at least 50% (ILO, 2015b; OECD, 2015b; IDB, 2015). In Chile, the introduction of the youth employment led to an increase in youth participation rates and a 6% increase in formal employment rates, with no substitution effect of older workers (Bravo and Rau, 2013).

Around 30% of the target population received the youth employment subsidy (Table 2.4), a higher coverage than the pension subsidy given the payment is higher. The take-up of employers has been usually lower than for employees, probably due to lack of information or administrative burden. To increase the take-up better information about the benefits of formalisation among employers and workers is needed, while merging both subsidies into one to simplify procedures would be advisable. Also, the subsidy amount should be higher to compensate for the costs of formalisation while linking it also to the health insurance contribution.

A stronger and more reliable link between contributions and benefits in social protection schemes would increase workers’ motivation to join formal employment. The private accounts for unemployment benefits and pensions in Chile go in this direction. However, only around 30% of the Chileans trust private pension’s institutions (AFP) (Vergara, 2017 and Bravo Commission, 2015). A good communication strategy to advertise which are the increased benefits and reduced costs for formalisation should be an important component of policy reforms oriented towards reducing informality. In a welcome step, the pension law in congress allows to centralize the job of following firms that do not pay pensions contributions, contributing to reduce informality. There is also a plan to make mandatory the payment of pension contribution for all those self-employed workers making invoices (boletas de honorario). All these policies should be accompanied by education and training policies to increase worker's productivity.

Box 2.3. Enhancing immigrants job quality

Immigration to Chile has tripled in the last decade, going from 1% of the population in 2006 to 2.7% in 2015, and is forecasted to continue increasing. This flow of workers enlarges the working age population, helping to sustain potential growth (Central Bank, 2017). Although being more educated on average than Chileans (Casen, 2015), a higher share of the immigrant population works informally. They also hold more frequently jobs for which they are over-qualified which often translates into wage penalties (Figure 2.9).

Figure 2.9. Foreign-born have higher chances of being informal and overqualified workers

As a % of population

Chile has made major policy changes to facilitate the integration of the migrant population and to secure the rights of the most vulnerable of this group. Among those measures are a new work visa created in 2015, and three different Migration Policy Councils. Integration of migrants was helped by several initiatives to encourage children born of undocumented parents and registered at birth as children of transient foreigners to claim Chilean citizenship. Also, the programme Escuela Somos Todos favours the grant of student visas to children enrolled in schools who have not yet claimed citizenship. To support the integration of migrants in the Chilean labour market, the national commission responsible for technical certification extended the recognition of skills to resident migrants. Still, regulation in Chile is not prepared to receive massive migration. Easier registration procedures and streamlining the integration process are needed. Other regulations need to be revised, such as the current quotas on foreign workers requiring that at least 85% of hired workers are Chilean nationals if the firm employs 25 or more individuals.

Collective negotiations

Strengthening collective bargaining could help reduce labour market inequalities. Coverage is relatively low (Figure 2.10), and negotiations are decentralised at the firm-level without coordination. However, the fraction of workers belonging to unions has been going up, from 12,8% to 16,5% between 2006 and 2016. Collective bargaining should help attain the right balance between flexibility and inclusiveness in the labour market (OECD, 20017e). In this sense, collective bargaining can help decrease income inequality provided that it does not increase labour market segmentation.

Figure 2.10. The coverage of collective bargaining in Chile is well below the OECD average

In 2016, the Chilean Government passed a reform to improve collective bargaining. It extends collective bargaining rights, incentivises union membership, and eliminates the replacement of workers on strike. In the first six months of implementation the reform did not have an impact on litigation or lengthier strikes (Ministry of Labour, 2017a). Continued monitoring is needed, and if necessary a clarification of the range of minimum services that are guaranteed in the case of strikes should be made. While increasing worker’s negotiating power is important, particularly in a country characterized by vast inequalities, a more ambitious reform to address the high degree of labour market segmentation is needed.

A comprehensive activation strategy is needed to strengthen employability

Job search and training policies should allow vulnerable workers to acquire and maintain relevant skills. By doing so, these policies can improve the quality of jobs as well as achieve higher productivity growth. This is especially important given the low skill levels of Chileans. The lifelong learning system should help adults to regularly update, upgrade, and sometimes even acquire entirely new skills and competences while in and out of work. This is even more important in the context of population ageing, where the majority of the workforce has already left initial education. The skills of the older workers will become obsolete more quickly as a result of rapid technological change and they will be required to stay in the labour force for longer.

Training programmes

Although Chile’s expenditure in training as a proportion of GDP is low (0.08% in 2015) compared with the OECD average (0.13%), it is higher than in other Latin American countries, including Mexico and Brazil. However, several assessments have concluded that Chile’s publicly funded training programmes are ineffective and poorly targeted at those who need it most (Larrañaga et al., 2011; Huneeus et al., 2013). Vulnerable, low-skilled workers and those facing labour market difficulties receive less training (Figure 2.11).

Figure 2.11. Training programs are badly targeted

Chile lacks a lifelong learning system with a clear national regulatory framework and a clear national plan. Most expenditure on active labour market programmes (ALMPs) are channelled into job training and executed by SENCE (the national training and employment service institution). The system is formed by: tax credits for on-the-job training (Impulsa Personas), training programs targeted primarily at vulnerable groups (e.g. Más Capaz) and employment subsidies.

Impulsa Personas (ex-Franquicia Tributaria) is one of the main training programmes. In 2016, it reached circa 8% of the labour force. Tax credits to firms who send their workers on training with certified institutions are equivalent to around 30% of public spending on training in 2016 (Table 2.4). This programme benefits mostly large firms, which tend to already have less vulnerable, highly educated workers (Larrañaga et al., 2014; Rodriguez and Urzúa, 2011) and does not reach the self-employed, which have accounted for a large share of job creation in the latest years.

The programme should be re-designed to boost the skills of the most in need. At the end of 2016, the Government changed the programme’s name and included the possibility of using the tax credit on evaluation and certification of competencies, using it for levelling programs for basic and adult education or for conducting a study on training needs within the sector. The aim is to link better training and worker needs to labour market demands. These efforts should continue, and there should be a requirement for the training providers of alignment with industrial needs. This can be achieved with more coordination among the actors providing and receiving training. Another desirable change is to limit the universe of eligible workers to those with medium and low salaries, so as to allocate public resources to those who are less able to pay and have greater deficiencies in labour competencies.

Another 30% of public spending allocated to SENCE in 2016 is targeted to the most vulnerable, including women, youth and low-skilled workers (Table 2.4). Más Capaz (More Able) is the flagship programme for skills and employability development introduced in 2014. The programme is targeted for women, youth and disabled, proving short-term training, labour intermediation services, and certification of competencies. In 2016, the programme reached around 5% of the target population. These types of short-term training programmes have proven to be modestly (but persistently) effective in terms of the quality of the jobs found in the region (IDB, 2015). Evidence for Chile indicates the programme works better for the unemployed than for the inactive (Brown et al., 2016). To raise impact of Más Capaz, work-based training should be introduced, to help beneficiaries get relevant experience. Also, better information on the type of skills needed or demanded by the market as well as on the variety and quality of the courses offered by providers is key for the success of these programmes (Kaplan, et al., 2015).

Programme	Type	Description	Eligibility	Target population	Beneficiaries	Evaluation
Más Capaz	Integral training	In place since 2014. Includes training, labour intermediation, levelling of studies, tertiary education, certification of skills and technical assistance for entrepreneurs.	Young people aged 18-29 and women aged 30-64 belonging to the most vulnerable 60% of the population and with low or none labour force participation.	2,032,709	96,925	Low participation of inactive women. During 2015, 80% of the budget was used for professional training, leaving aside the other components of the integral training (Dipres, 2015). While 35% of the unemployed find a job, only 7% of inactive did it (Brown, et al., 2016)
Becas Fondo Cesantía Solidario	Training	In place since 2007. Financing of a training programme chosen by the beneficiary.	Unemployed people who are active beneficiaries of the solidarity pillar of the unemployment benefits.	111,818	2,956	--
Bono Empresa y Negocio	Training	In place since 2011. Financing of a training programme chosen by the beneficiary.	Owners, partners or legal representatives of registered small and micro-enterprises and self-employed.	854,169	6,803	Most beneficiaries were self-employed workers with low participation of micro-entrepreneurs. Positive impact on income or the enterprise’s growth for micro-entrepreneurs and on self-assessment and network building for the self-employed (Cliodinámica, 2013).
Aprendices	Training	In place since 2002. Apprenticeship programme combining on the work-training with classroom-based training.	Young workers aged 15-24.	151,444	1,283	No effect in the mean salary of the participants but positive effect on the probability of being employed and in the duration of the employment after participation in the programme (Statcom, 2006)
Subsidio al Empleo Joven	In-work benefit	In place since 2009. The benefit depends on the monthly income, and includes a subsidy for the employer.	Young workers aged 18-24 belonging to the poorest 40% of the population.	773,601	320,523	Positive impact in the employment rate and labour participation in the eligible population. The impact is lower for young people aged 18-19 than for people aged 20-24 (Bravo, D., T. Rau., 2013)
Bono al Trabajo de la Mujer	In-work benefit	In place since 2012. The benefit depends on the monthly income (which could reach 20% of the monthly salary), and it includes a subsidy for the employer.	Female workers, dependant workers or self-employed, aged 25-59, belonging to the most vulnerable 40% of the population, and are up to date with the payments to social security.	1,553,586	337,589	Positive effect of 0,85% in the employment rate for women in the target population, but the effect is very different according to the level of vulnerability of the beneficiaries, becoming insignificant above the 20% vulnerable women (Larrain and Henoch, 2016).
Impulsa Personas (ex-Franquicia Tributaria)	Training	Tax credit for firms				The evidence of the impact on wages is mixed, some studies found a small effect (less than 5%) and some of them found no effect, and none of the studies found an impact on the probability of being employed. At the firm level, no impact on sales was found, but an increase in the sales per worker and in the hiring of qualified workers was found (Mardones and Sepulveda, 2017; Rodrigues and Urzua, 2011).

Lately, efforts have been made to increase SENCE’s technical capability and the relevance of the courses. A Qualification Framework (ChileValora) has been developed and there are more courses linked to these profiles. Also, the training providers (Organismos Técnicos Capacitadores, OTECs) are required to provide courses in line with industrial needs. However, there is no formal mechanism to evaluate and it is difficult for training users to check quality of the courses. Also, some profiles raised by ChileValora are sometimes too specific or too related to a certain group of companies (Ruiz-Tagle and Ruiz de Viñaspre, 2017). Efforts to better link training to the labour market need to be strengthened in coordination with employers. Feedback from national skills anticipation and assessment exercises to understand better skill needs and how these match the skills of the workforce would be valuable for the creation and update of the training offer.

A systematic assessment of the labour market impact of activation programmes is needed. Even if there are some experiences with impact evaluations, rigorous evaluation mechanisms should be implemented to identify what works better for firms as well as workers, particularly in terms of earnings quality and job security. The design of programmes should be done considering the collection of appropriate data to monitor and do effective impact evaluations. The emphasis should be on ensuring that resources are channelled towards programmes that proved to be effective in helping people gain employment in quality jobs that match their skills.

Search and matching assistance

Public employment services can play an important role in matching labour demand and supply through the provision of information, placement and active support services for the unemployed and getting inactive workers into employment. The provision of public employment services in Chile is a shared responsibility between central and municipal governments. The main channels for service delivery are the municipal employment offices (Oficinas Municipales de Información Laboral, OMILs) and the online national jobs portal (Bolsa Nacional de Empleo, BNE) which exists since 2007 and re-launched at the beginning of 2017.

The integrated information and management system to improve the links between job training, job placement and labour market information is being strengthened. It is based on online platform Bolsa Nacional de Empleo, which provides automated matching services between jobseekers and employers. The registration is mandatory for those unemployed and receiving the solidary fund of unemployment benefits. This system is a welcome step since it allows better coordination between agencies, such as pension funds, internal revenue service and civil registry, and it will enable the allocation of resources and delivery of services in accordance with specific local conditions. However, OMILs use the system mainly to register workers and do very little job intermediation through it. To increase efficiency, all OMILs should be obliged to share information on vacancies, allowing for more coordination among them (IDB, forthcoming). Furthermore, the system could be used to provide training opportunities or other type of services, such as workshops to give beneficiaries a full set of relevant opportunities.

OMILs should become a gateway for socially disadvantaged members of the population into training and job-search policies. The online-information system needs to be accompanied by specialised counselling providing tailored assistance and guidance in job search and training opportunities (OECD, 2015b). Since 2009, the OMIL's strengthening programme (Programa de Fortalecimiento OMIL, FOMIL) has facilitated both the expansion of employment offices and their improved performance. Joint efforts by central and local government have resulted in a rapid increase in the number of employment offices from 167 in 2009 to 326 OMILs covering 94% of the country in 2015 (ILO, 2015a).

Efforts to train counsellors to deliver specialized support for vulnerable groups should be strengthened. SENCE provides financial incentives to reward OMILs that better serve groups with low employability (e.g. female heads of household, people with disabilities or first-time jobseekers aged 18-25), especially those in the bottom two income quintiles. However, only 2% of SENCE budget is allocated for labour intermediation and individual guidance (IDB, forthcoming). Still a high share of OMILs provides low intermediate level services (ILO, 2015a). A new online training programme for OMILs to ensure that all employment offices run similar service protocols to connect target populations with employability development programmes has been launched in 2016, but it is not yet applied in practice (IDB, forthcoming). The delivery of the services can be enhanced through the development of profiling tools helping the OMILs to case workers to streamline their activities and provide more tailored and effective support (OECD, 2015b). The Ministry of Labour is starting to identify new tools for the delivery of public employment services but these measures will need time to be fully operational and should be carefully monitored to ensure they achieve the desired objectives. These methods should be used with all unemployed or registered within BNE and OMILs and those applying to SENCE programmes.

An ambitious reform of ALMPs could provide tailored services to vulnerable groups through training vouchers provided through online learning accounts (based on BNE) and based on the worker’s employability. The vouchers could be spent in different employment services but also childcare and transportation, depending on the identified employment barriers. Profiling tools should be used to identify employability and barriers. The beneficiaries should be referred to specialised service providers to help them select from remedial and vocational education, on-the-job training, workshops, or microenterprise programs. These types of targeted financial incentives, such as in Germany, have proved to promote learning and can improve equity in access to learning, particularly for women and the low-skilled (WEF, 2014; Cedefop, 2016).

Promoting gender equality

Equal participation of both genders in the economy is crucial for growth and well-being of the population. Halving the labour force participation gender gap by 2025 could bring an increase in the annual GDP per capita growth of 2.85% in Chile (OECD, 2017f). Moreover, increased employment opportunities for women can contribute to a more equal distribution of household earnings (Causa et al., 2015).

Political, social and economic empowerment of women has seen remarkable progress over the past few decades (OECD, 2016a). However, gender gaps still remain. The employment rates of women has increased substantially in the past decade but the difference with the male employment rate is still high (Figure 1.12, panel A). The wage gender gap has increased in recent years and is well above OECD average (Panel B). OECD calculations indicate that on average a large unexplained gender wage gap remains after controlling for education, age, industry and occupation. This unexplained gap has been stable since 2009 and accounts for other factors such as discrimination or the long-working hours culture which prevent mothers from participating in highly paid jobs (OECD, 2016e). The increase in the gender wage gap between 2009 and 2015, instead, appears to be mainly driven by a relative increase of female employment in lower paid industries. Women are more likely to work in informal jobs or other non-standard employment arrangements, where earnings are often lower, labour market insecurity higher and social protection weaker.

The participation of women in the labour market or in good quality jobs is, at least in part, held down by economic barriers related to childcare (Garda and Undurraga, forthcoming). Motherhood typically implies negative effects on workforce participation, pay and career advancement, reflecting women's disproportionate responsibility for unpaid caregiving (OECD, 2017f). Efforts towards universal early education have raised coverage to 86% and 93% for 4 and 5 year olds in 2015, close to the OECD averages of 88% and 94%, respectively. For children aged 3 the coverage is 56% far from the OECD average of 78% (OECD, 2017a). The government has recently introduced reforms to extend quality Early Childhood Education and Care (ECEC), as part of a bigger educational reform in 2014. Public child care centres and kindergartens are being built and expanded to provide care and pre-school education to over 70 thousand additional children (32.500 of which are under 3 years of age). The reform also strengthens the ECEC system by creating new institutions in charge of monitoring, updating curricula and setting quality standards. Quality is also enhanced by making the ECEC teachers part of the general teaching body, which gives them greater opportunities for professional development and support, higher salaries and a new framework for good teaching.

Continuing to expand access to high-quality public early childcare and enlarging opening hours are needed to facilitate quality employment for mothers, notably for the poorest children and in rural areas. Evidence on the relationship between the supply and demand of educational services indicates that lower-income households tend to base their choices on non-academic factors such as distance and opening hours or availability of extracurricular activities (Alves, et al. 2015). Cultural and social factors play also a significant role explaining the low female labour force participation (Contreras and Plaza, 2010) and could also explain the low demand for childcare centres. Parents need to understand the importance of sending the children to early education, and centres need to be near the house or work with available transport and compatible opening hours to increase female participation in high-quality jobs.

The Government has tried several times to amend a law by which companies employing 20 or more women have to cover childcare costs for the female employees’ children during the child’s first two years. This regulation can encourage greater female labour supply; but it also increases the costs of hiring women relative to men reducing the hiring rates for female workers. Evidence shows that firms translate the childcare costs to the workers through lower wages (Rojas et al., 2016). Indeed, the marginal women hired beyond the 20 workers threshold earn between 9 and 20% below female workers hired by the same firm when no requirement of providing child care was imposed (Prada, et al., 2015), amplifying gender gaps. Providing universal childcare and financing it through general revenues would raise female employment and wages in medium sized and large firms.

The over-representation of women in informal and other precarious jobs is, at least in part, a consequence of the unequal gender distribution of unpaid work. Chilean women carry out at least two times more unpaid household and care work than men (UN, 2015). This inequality affects women’s ability to obtain and remain in jobs – given the hours and availability that some jobs require. The efforts of the newly-created Ministry of Women and Gender Equity to raise awareness are welcome and should continue. Policies to promote flexible work arrangements, shared mother and father parental leaves together with incentives to allow fathers to take parental leave and breaking stereotypes are needed.

To encourage women from vulnerable backgrounds to engage in formal work, the government introduced an in-work benefit: Women's Worker Bonus (Bono al Trabajo de la Mujer) in 2012, similar in design to the youth employment subsidy, increasing the coverage in 2014 and 2016. The benefit targets women among the 40% poorest households aged 25-59 that are employed or self-employed and are up to date with the payments to social security and can be used for a maximum of 4 years. It also includes a subsidy for the employer to encourage labour demand and formalisation for a maximum of two years. Recent evidence shows that the Women's Worker Bonus has a small average positive impact on the employment rate of 0.85% for the 40% most vulnerable women (Larrain and Henoch, 2016). Women in the poorest 5% households have the maximum impact of around 3% in the employment rate, an effect that decreases and becomes insignificant beyond the poorest 20% households. Furthermore, just 20% of the eligible women are beneficiaries (Sence, 2017). This suggests, at least in part,, that the benefit is not high enough to be an incentive for formalisation and be up to date with payments to social security (Dipres, 2016). Further impact evaluations of this benefit are needed and in case of need make changes to enhance formalisation.

Skills are also an important employment barrier faced by women. Women tend to underperform men in literacy proficiency, being on of the largest gaps in the OECD (Quiniti, forthcoming).The government introduced in 2014 training programmes (Más Capaz Mujer and Más Capaz Mujer Emprendedora) for women between 18 and 64 years old, belonging to the 60% poorest households, having low or weak formal labour force participation (less than 6 months of paid social security in the last 12 months). One of the programmes is especially designed for female self-employed. The programmes provide between 100 and 300 hour-courses, plus transport and childcare subsidies. The share of inactive women participating in these programmes is low (Dipres, 2015), driven by the fact that the subsidy is not high enough to cover the costs for self-employed female workers to participate. Since women vary in terms of employability and difficulty in participating in quality education/training, a voucher or training account with amounts depending on the female profile would be advisable. The amounts of the voucher, which could also be spent on childcare and transportation services, would depend on the female worker situation (age and one or more children and rural or urban locations). Finally, female workers tend to experience a wage gap after participation in the programme driven mainly by the difference in the type of courses women participate (Brown, et al., 2016). Encouraging women’s access to academic fields that “pay off” should be priority, by for example increasing information on field’s labour market outcomes.

Improving relevance of education is key to raise the supply of quality workers

Education is the key to equality of opportunity and social progress. Education policies should ensure that workers are equipped with the right skills to thrive in the labour market and get high-quality jobs. A skilled workforce also makes it easier to transform to a knowledge-based and innovative economy, boosting productivity and growth. Having a skilled workforce requires a high-quality education system that gives individuals the best possible start in the labour market. It also requires that the skills acquired through the education and training system correspond to labour market needs avoiding skill mismatches.

Progress in education attainment across Chilean generations has been notable. There has been a clear increase in attainment rates between the younger and older generations (Figure 2.13) and consistent signs of improvement in the quality of education in the latest years. However, average levels of proficiency in science are still low compared to other OECD countries and significant inequalities persist in school outcomes (Figure 2.14). Chile is one of the countries where the socio-economic background of students influences performance the most. Furthermore, students also have larger performance gaps related to gender than in other OECD countries, with boys outperforming girls in science and mathematics (OECD, 2017a).

Figure 2.13. Education has progressed over the recent years

Figure 2.14. School results have improved, not equity

A wide-ranging educational reform to improve the quality and equity of the education system has been initiated in 2014. The reforms spans early childhood education and care (ECEC), student selection and admission processes in schools, public school governance and funding, teacher career pathways, vocational education and training (VET) and tertiary education.

Initial education and schools

Access to quality education opportunities is highly stratified. Students from vulnerable backgrounds and low socioeconomic status choose, on average, different academic alternatives than students who do not live in vulnerable conditions. Comparatively few 15-year-old students attend public municipal schools, organised by public authorities: 38% against an OECD average of 82%. The remaining students can be divided between those attending private-subsidized schools (51%), which receive the majority of their funding from public sources (48%, compared with the OECD average of 14%), and those attending government-independent private schools (10%) (OECD, 2014a). Urban areas have a larger share of private subsidized schools and a majority of public-municipal schools are located in rural areas. As in other OECD countries; private schools tend to perform better. But this difference can be almost entirely attributed to students’ and schools’ social background. After accounting for social background of students and schools, this advantage disappears (OECD, 2014a).

The Inclusion and Equity Law of 2015 aims at reducing these inequities in school. The reform aims to reduce segregation, mainly by terminating co-payments mechanisms (payment by the government and shared financing paid by parents), gradually ending student selection in schools receiving public funding, ending the possibility of schools receiving public allocations to make profits, eliminating student selection, and providing increasing public resources to the Preferential School Subsidy (Subvención Escolar Preferencial) discriminating positively in favour of schools with larger proportions of vulnerable students. In 2016, 600 thousand students that were paying for their education have now access to free education. The reform also seeks to improve quality of education by increasing teacher career prospects. A New System of Teacher Professional Development was adopted in 2016, raising requirements for accreditation of universities providing initial teacher preparation, introduced teacher career pathways and pay structures, increased non-teaching time for class preparation, and salary increases for the whole profession plus additional bonuses provided to teachers working in socio-economic disadvantaged schools. This new system includes VET and early childhood education teachers.

If well-implemented, the school reform can reduce segregation, assure quality curricula and increase teacher performance. This can help improve social mobility and skills outcomes for all. The country should continue to monitor and discourage school level practices that hinder equality of educational opportunity based on socio-economic status, gender, ethnicity, or immigration status (OECD, 2017b). In particular, inclusiveness will depend on encouraging girls’ entry into fields of study traditionally dominated by men, such as mathematics and science. Also, maintaining and strengthening the Preferential School Subsidy, ensuring that the resources reach schools, monitoring their impact, and creating incentives to invest the majority of the funds in capacity building for continuous instructional improvement would benefit the most vulnerable students, notably indigenous and immigrant children (OECD, 2017b). Furthermore, more efforts are needed to develop a broader and high-quality early childhood education strategy, focusing especially on children in the lowest quintiles or in rural areas (OECD, 2017b). A National Plan for Early Childhood Education and Well-being building on the existing achievements, as the one implemented in Australia in 2009 or Canada in 2014, would ensure clarity in goals and national recognition on the importance of ECEC and support development of policies and initiatives to enhance quality and continuity of the learning experience.

Vocational Education and Training

Improving Vocational Education and Training (VET) can substantially enhance skills, inclusiveness and avoid skill mismatches for a large share of the population. VET is well-developed but quality and equity remain key issues (OECD, 2017b). It is expected that 84% of Chileans will complete upper-secondary education over their lifetime, which is equal to the average across OECD countries (OECD, 2014a). The majority of those will graduate from a general programme (55%), yet VET is important for upper-secondary education, chosen by almost 40% of these graduates.

Students in VET tend to come from a more disadvantaged background. Only 3% of the richest students enrol in upper-secondary VET, while more than one third of the poorest ones choose vocational paths (Figure 2.15). Improving the quality of VET is paramount to help the most disadvantaged groups of the labour market get quality jobs providing them with the right balance of technical and broader skills.

Figure 2.15. Students in VET tend to come from a more disadvantaged background

Distribution of students in upper-secondary education, by access program, 2015

The educational reform aims to develop a VET system better linked to labour and economic needs by achieving higher coordination between firms and training institutions. Four key elements define the new policy: 1) increasing VET quality, by developing more transversal skills in VET, incorporating VET teachers in the New System of Teacher Professional Development; 2) fostering competitiveness, entrepreneurship and innovation by ensuring a relevant offer of VET programmes, for example, through the creation of a VET qualifications framework; 3) successful education and labour pathways requiring better connecting training institutions and the labour market and achieving higher articulation with training programmes (such as Más Capaz); 4) a new governance of the VET system by creating a new council for VET (Consejo asesor de la formación técnico profesional). In a welcome step, the Advisory Council for Professional Technical Training, (an entity headed by the Ministry of Education in collaboration with other ministries, agencies and experts) is developing the Professional Technical Training Strategy 2018-2030, which seeks to establish a road map to improve vocational training.

The reform goes in the right direction, but more is needed. For example, VET programmes have a low content of work-based learning. A small share (less than 10%) of upper-secondary VET students follow a dual track, which consists of alternating periods of school-based and work-based training. As noted in previous surveys (OECD, 2013 and 2015a) and the OECD review of Chile’s VET system (Kis and Field, 2009) workplace training, as part of VET programmes, is poorly developed and the mechanisms to assure its quality are weak.

Chile’s upper secondary and tertiary VET programmes are not well connected. The VET system also offers tertiary VET programmes, including technical training centres (Centros de Formación Técnica, CFT) and professional institutes (Institutos Profesionales, IP), which are all private institutions, with the exemption of the new 15 CFT centres as part of the ongoing reform of higher education. CFT and IP enrol 43% of students in tertiary programmes. Universities can also offer vocational programmes, but less than half do. Students can pass from one programme to another, but they often have to re-take coursework. A national qualifications framework, under development, that differentiates and classifies distinct qualifications issued by different types of providers can help promote greater coherence, transparency and student mobility across levels. This will help build strong connections between VET and academic programmes and the labour market.

The relationship between qualifications and skills in Chile needs to be reinforced to improve the skill-matching process and the selection of skilled workers by employers. This should be done by strengthening the links between education providers and employers. Strengthening the work-based learning component of formal education is also essential for qualifications to become true signals of skills and to enhance skill matching. Also, more and better incentives could be provided for employers to hire and train youth by facilitating and expanding the take-up of youth employment subsidies (such as, Yo trabajo or Subsidio Empleo Joven, see Table 2.4) and linking them to work-based learning.

Strengthen quality and relevance of higher education

The benefits from higher education are significant in Chile, both in employment and earnings. The employment prospects and earning premiums of tertiary-educated individuals in Chile are above average for OECD countries (Figure 2.16). However, only 22% of the population have completed tertiary education, compared to the OECD average of 37% (OECD, 2017a).

Figure 2.16. Employment and earnings prospects for tertiary educated are large in Chile

Enrolment in higher education institutions almost doubled, but higher education programmes proliferated without strategic coordination. Skills of tertiary educated lag behind other OECD countries and there is large gap between VET and bachelor tertiary education (Figure 2.17). 84% of Chilean students are enrolled at private institutions (technical-professional or universities). While all public or non-for profit private universities (known as CRUCH in Chile) were accredited institutions in 2016 (OECD, 2017b), 57% of Chile’s private universities and less than half of the VET high education institutions were accredited (IPs: 40% and CFTs: 33%). Furthermore, the net returns to higher education have a large dispersion, being negative for a significant share of students at the university (22%) and technical levels (55%), meaning that these students net earnings (after paying for their studies) might have been higher if they had not earned a higher education degree (González-Velosa, et al., 2015). This is at least partly explained by poor quality education and a disconnection with labour market needs.

Figure 2.17. Quality challenges arised from the rapid increase in tertiary education enrolment

In January 2018, the government passed a wide-ranging higher education reform, to address access and quality issues. The reform creates a new Sub-Secretariat for Higher Education covering universities and VET at tertiary level bringing higher education institutions together in a unified system; and a new Higher Education Superintendency. It introduces measures to strengthen quality assurance processes, through the reinforcement of a national quality assurance system for higher education and the creation of a new VET Advisory Committee (Consejo Asesor de Formación Técnico Profesional) composed by the higher education Sub-secretary, the Superintendency and the National Council of Education. Furthermore, efforts to increase the involvement of the government in higher education have been made by creating two public universities and 15 public VET centres.

A high share of tertiary education spending comes from private households. At tertiary level, private spending constitutes 64% of all expenditure, more than double the OECD average of 30% (OECD, 2017a). Furthermore, Chile charges the second highest tuition fees at public institutions in the OECD after the United States. Typically, students from rich families get state-subsidised university places, while lower-income tend to attend lower quality private institutions and accumulate debt (OECD, 2017b).

Chile’s student financial aid system is complex, consisting of scholarships and loans. Since 2016, grants for the bottom six deciles of family income through the “free education” (gratuidad) programme. The financial aid system could be simplified and merged into one to better target low income students, as the existing scholarships and loans favour universities that attract the less vulnerable (OECD, 207b).

The higher-education funding system should balance access and quality, and provide more incentives to enhance quality. As previous surveys noted (OECD, 2015a; OECD, 2013), Chile should develop a funding system for tertiary education that, balances strong labour market outcomes for all, while enhancing quality. Achieving equity in access to high-quality higher education will require further efforts to address financial barriers and academic and social challenges that disadvantaged students face in early childhood and compulsory education, when they transition into higher education and complete their degrees (OECD, 2017b).

Chile needs to take steps to develop an effective and mandatory accreditation system for all tertiary VET programmes and institutions. The higher-education reform envisages mandatory accreditation for all institutions and should be implemented. Existing processes are voluntary and designed for academic university programmes, and sometimes have little relevance for VET programmes. There is wide variability in the quality of VET programmes, hurting both students and employers which lack information on the programmes’ quality. Ensuring that all tertiary VET programmes and institutions do not fall under a certain quality level is needed to increase quality and equity in the system.

Higher education institutions are weakly linked to the world of work. Institutions lack linkages with research and development. Employers are minimally engaged in identifying programme needs and planning curricula and frequently complain about the gap between what students learn at university and the needs of the labour market. Chile has one of the smallest proportions of firms collaborating on innovation with higher education or research institutions in OECD (OECD, 2016c). The development of the National Qualification Framework will help, but details of implementation will be key for the success. Once the National Qualification Framework is developed it should be used as conditionality for receiving public funding (OECD, 2017b). Also, adequate student counselling and mentoring to support students in their decisions would help to increase relevance in their decisions.

Improving labour market information on skill needs and ensuring that this information is used effectively to develop the right skills across all formal education and training policies is paramount to increase relevance of the educational offer and reduce skills mismatches and shortages. This can be done by promoting skills assessment and anticipation (SAA) exercises. Typically, the results of SAA produce information on where (i.e. in what economic sectors, occupations, or geographic areas) and when (i.e. now, in the future, or both) the demand and supply of skills are (mis)aligned. It is useful for policy makers to steer policy action (e.g. in education, employment, and migration policy areas), and by individuals (e.g. students; jobseekers) to support their employment or education choices. In particular, it could be used to link formal education (VET and universities) and training to the needs of the labour market.

The Productivity Commission has started to analyse skills gaps and should develop a national action plan with specific short- and long-term recommendations to strengthen vocational education and the training system. At the moment, there are no national level exercises and the most developed exercise is the annual mining-specific forecast carried out by the mining council (Consejo Minero de Chile). Chilean regional exercises rely mostly on the analysis of labour market statistics and the regional foresight exercise is still in development. Up to now, all skills assessment and anticipation exercises were sectoral and carried out on an ad-hoc basis by sector organisations based on secondary data (OECD, 2016b). Chile should develop a national and better integrated SAA exercises and use them to inform education, employment, and migration policy as well as students and jobseekers. These strategies will help make it possible for education, particularly training systems and technical education, to become more attuned to employers’ skill needs.

Chilean universities perform very well in international rankings by regional standards. Researchers show also relatively high levels of international mobility. However, attracting international faculty and alumni studying abroad is relatively limited. Enhancing internationalisation of faculty could be done through the National Scientific and Technological Research Commission using international linkages as decisive criteria in assessing proposals for supporting research centres, or further efforts to send researchers abroad for at least part of their PhD training (OECD, 2017b). Building higher participation in international exchanges should be a priority for the higher education system, with support from the Government potentially in the form of faculty grants, student scholarships or financial incentives for institutions. Developing agreements with higher education institutions abroad ensuring adequate and efficient recognition of credits during academic exchanges would help enhance internationalisation.

Developing an apprenticeship system

Developing an apprenticeship system would improve youth’s opportunities to get better quality jobs (Kuczera, 2017), avoid skill mismatches and enhance productivity (Fazio et al., 2016). Apprenticeships can help young people to maintain the link with the labour market, gain useful work-relevant skills, reduce school drop-out rates, improve employment opportunities and have a first formal job (OECD, 2015b; ILO, 2015b). In Brazil, for example, 80% of those who complete apprenticeship programmes find a formal job within two years. Yet, their effectiveness depends on ensuring access to high quality programmes, making apprenticeships valuable to youth and attractive to employers.

Chile has an incipient system of apprenticeship but participation is low (Figure 2.18, Panel A). The main apprenticeship programme (Aprendices) is for out-of-school workers aged 15-24 (Table 2.4). It combines on the work-training with classroom-based training, where the apprentice receives at least the minimum wage (maximum two minimum wages). The company receives a training voucher of half the minimum wage as to encourage additional training on the side of the employer for one year. The classroom-based training is provided by the OTECs, which are administers of the apprenticeships nationally.

Figure 2.18. Participation and outcomes of the apprenticeship system in Chile are low

The apprenticeship contract remains underutilized. In 2016, 1 286 workers participated in this programme (0.9% of the target population). An evaluation of 2006 shows that the programme has positive effect on employment prospects for the beneficiaries (Dipres, 2006). For those that finished in 2008, 40% stayed working within the same firm and 20% find a job related to the obtained training (ILO, 2010). However, no proper evaluation is available since there is no reliable data and evidence shows that youth participating in apprenticeship contracts have low proficiency levels (Figure 2.16). A system of follow-up information on the beneficiaries’ job performance and the acquisition of human capital to create feedback mechanisms based on accurate information is advisable, so as to evaluate the medium and long term impacts of the program.

There are no mechanisms to ensure the quality of training and regulate it in terms of content and learning objectives. In particular, there is no coordination with VET and ChileValora (Chilean certification organisation). A national system of control and monitoring of the training provided by firms, the crucial element of the apprenticeship contract, needs to be set up. Also, offering the possibility to link it to formal education creating a dual-VET system (at upper-secondary and tertiary education) can increase work-based learning in formal education while making it more relevant for youth and employers. Finally, specific quality criteria need to be set for firms offering apprenticeships as done in other countries.

Financing the apprenticeship system may require a co-funding system by public resources and employers. The governance arrangements in the system are mirrored in the financing. If based on a co-financing model between the firm and the government, the firm may want to be part of the development of the system. Typically, the government covers off-the-job training, the employer covers on-the job training and apprentice wages, and the apprentice agrees to receive a lower wage within the context of a win-win-win scenario that will allow all parties to reap the benefits of their investment. To finance the on-the-job training, an apprenticeship levy depending on the firm size, such as in France, or a levy payed only by the largest firms, such as in the United Kingdom would encourage the involvement of the private sector by controlling a common training fund, especially small and medium firms (Box 2.4). This could be accompanied by targeted subsidies to encourage participation of the most vulnerable. Lessons from the Chilean on-the-job training tax credit should be considered in designing the levy.

Box 2.4. Financing the apprenticeship system using levies

The aim of levy schemes is to reward employers that create apprenticeships and to make indirect beneficiaries, such as other companies, contribute to the cost of training. Also, levy schemes that require employers to be directly involved in managing the training fund, and identifying training priorities, are intended to give employers a sense of ownership of, and involvement in, training.

Some countries have levy systems specifically designed to support apprenticeships:

Denmark maintains a dual apprenticeship system supported by an employer levy system. All employers, public and private, contribute to the Employers’ Reimbursement Fund by a fixed amount for each employee (in 2016, around EUR 370 per year). Levy funds are used primarily to pay apprentice salaries while they are pursuing off-the-job training. Apprentice wages are set at the sector level through collective agreements, and typically reach 40 to 50% of the minimum wage.

A new funding arrangement, based on an employer levy, has been introduced in the United Kingdom (England) in 2017. The levy is collected at the rate of 0.5% of payroll over GBP three million, smaller employers will be exempted. Levy-paying employers will be given a digital training account where they can see “their” levy contributions accumulating in a fund that is topped up by a 10% contribution from the government. They can use this account to pay registered providers to provide training (and other bodies to provide assessment) for apprentices in their workforce. Employers who cannot call on these funds (either because they are small employers who pay nothing or little into the levy, or because they have exhausted the training account) must pay 10% of the training and assessment costs of their apprentices, with the levy funding the remaining 90%.

France maintains a complex mix of incentives to encourage employers to offer apprenticeships. A training levy in the form of an apprenticeship tax is set at 0.5% of the wage bill, plus an additional 0.18% tax contribution to a separate “apprenticeship development” fund. Large employers with 250+ employees provide a further contribution that varies with the percentage of their employees in work-based vocational training (apprenticeships and some other schemes). Most funds from these taxes are channelled through intermediary bodies and the regions to offer employers a tax credit of EUR 1 600 per apprentice, and an allowance of at least EUR 1 000 per apprentice. Employers are largely exempt from social security contributions on their apprentices (a substantial benefit in France). Employers may also opt for some of their contributions to the apprentice tax to go directly to the local training institutions that they designate, including higher education institutions.

Source: Kuczera, M. (2017), "Striking the right balance: Costs and benefits of apprenticeship", OECD Education Working Papers, No. 153, OECD Publishing, Paris.

Engaging small and medium-sized firms could be particularly challenging. SMEs can be sensitive to the risks of engaging in this form of training, especially if they are unsure of what will be expected of them in the course of training an apprentice, or whether they will be able to retain the apprentice post-training. SMEs need not only financial incentives, but a supportive business environment offering practical assistance. To create such an environment, a coordinated strategy involving all stakeholders in a sector or a community is paramount. One good example is the Australia's group training organizations (GTOs). GTOs recruit apprentices and sign the apprenticeship contract and place apprentices into host employers. It is attractive to SMEs as the administrative costs are reduced. GTOs also provide additional services such as broking vacancies for apprenticeship and candidates and reviewing the quality of training (OECD, 2016d).

Recommendations for more and better jobs in Chile

Policies to reduce labour market segmentation

Key recommendations

Reduce severance payments for permanent contracts and increase coverage of unemployment benefits by reducing the minimum contribution periods.
Expand the existing wage subsidies in formal jobs for young and vulnerable workers

Active labour market policies

Key recommendations

Better target training programmes to the most vulnerable workers.
Strengthen participation of employers in the development of training courses and programmes by using information from skill assessment and anticipation and integrating employers in the development of curricula.
Implement systematic assessments of the labour market impact of activation programmes to focus funding on those that are performing well or to improve those existing.

Other recommendations

Further strengthen the qualification framework (ChileValora) and ensure the training providers are required to provide courses in line with industrial needs.
Continue to improve job search assistance by further strengthening local employment offices and training counsellors to deliver specialised support for vulnerable workers and develop profiling tools to help case workers.
Ensure that the online-information system (Bolsa Nacional de Empleo) is used in all employment offices to increase coordination among them and ensure a nation- wide database.

Promoting gender balance

Key recommendations

Further increase affordable, good-quality child care, and expand opening hours for childcare institutions.
Eliminate the requirement for firms to finance childcare once they employ 20 female workers or more.

Other recommendations

Foster women’s and girls’ equal access to academic fields that “pay off” and usually dominated by men, by providing information on labour market outcomes and campaigning and raising awareness among young men and women, parents, teachers and employers about gender-stereotypical attitudes towards academic performances.

Improving the relevance of the education system

Key recommendations

Develop a National Plan for Early Childhood Education and Well-being.
Develop work-based learning programs based on apprenticeships across all levels of education and training.

Other recommendations

Strengthen engagement with employers, trade unions and civil society in the design of programs, curricula, certification, and quality assurance in VET and tertiary education.
Ensure SMEs have incentives to participate on apprenticeships and introduce a system to control and monitor quality of training provided by firms.
Develop a national skill assessment and anticipation exercise to feed educational policy and students decisions.

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