Chile Labor Market Reform

The Chile labor market reform has come a long way and in each stage undergone few reforms to meet the demand of the changing market conditions. After the deadly coup of 1973, several labor unions, labor institutions were dissolved. In October, 1973, the Chilean government introduced wage adjustments, which were linked to inflation rate.

Chile labor market reform is significant because of the following reasons:

I) The country underwent a switch over from an economy, which was regulated to an economy, which is unregulated as well as open. This was brought about by the implementation of economic reforms pertaining to labor markets and pension system in the country.

II) The labor market in Chile has been over the years very unpredictable.

Labor market in Chile during the seventies:

During the middle seventies, the government in Chile launched the first structural reforms in Chile. Which in turn increased the unemployment rate. However, Chile experienced a healthy growth in the economy towards the end of seventies. Despite the speedy growth in economy, the labor market refused to recover from the high rate of unemployment.

Labor market in Chile during the eighties:
Reverse to what it was during the seventies, the labor market in the eighties recuperated very fast even though the crisis was much more severe than the previous one. Even rate of growth in wages recovered comparatively fast. During this period, rate of unemployment reached 25%.

As part of Chile labor market reform, the proportional adjustments pertaining to lower wages was made more than the higher wages. The method of indexation that existed between 1973 to 1979 had many drawbacks. In order to overcome these drawbacks, Labor Plan of 1979, was implemented, which stated that adjustment of wages would be made at or above inflation rate. At regular intervals, as part of Chile labor market reform, the government carried on with the practice of increasing wages but not in accordance with the rising rate of inflation. However, during the 1990s, there was increase in wages higher than what was declared for the purpose of readjustments.

The Employment Security Law, states that if there is no valid cause for dismissing an employee, the worker could be re engaged in the job as per orders from a labor court. However, in the year 1978, this law was substituted by a method of “severance payment”.

Chile labor market reform, Decree Law 2,200 stated that employers had the right to make changes in the contract between the employers as well as the employees and that they could fire an employee without giving any explanation to the employees. A “severance payment”, which was minimum was also introduced.

Decree Law 2,200 as well as Chile labor market reform of 1979, led to the introduction of new techniques to supervise the activities of the labor unions. This was stated in Decree Law, 2,756. Collective bargaining was stated in Decree Law 2,758. Decree Law 2,756 and Decree Law 2,758 are collectively referred to as Labor Plan.

Decree Law 2,756 governs matters related to labor union. Whereas, Decree law, 2,758 governs the various norms adopted in the event of a strike.

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Last Updated on : 26th June 2013

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