Social protection during recessions: evidence from Chile

Abstract

This article analyzes the main labor market risk management strategies adopted by the Chilean Government during the 1999 recession that was initially related to the Asian financial crisis. Their successes and failures can suggest innovative social protection solutions for other countries. It seems that the 1999-2001 labor reforms and a three-year plan to increase the minimum wage intensified the recession's effects on unemployment. Probit models indicate that households coped with the recession's effects by increasing wives' labor supply but not by withdrawing children from schools. The expansion of employment programs probably helped households to adopt these coping strategies.

Macroeconomic shocks and policy reforms: Lessons from the 1999 downturn in Chile

“…Indirect employment programmes, such as occupational training and time-limited subsidies for job creation in the private sector, were preponderant at this stage. 12 The acceleration of investment in labourintensive public infrastructure projects was also used as an instrument to increase demand for labour during the downturn (Guzmán, 2016). This provided indirect support for employment by increasing the demand for (predominantly) unskilled labour as a consequence of the increased investment.…”

“…The flaws of the employment programmes included: (i) the absence of a self-targeting mechanism to include informal workers, (ii) the duplication of functions and administration costs between the programmes because of the overlap in objectives and potential beneficiaries and (iii) the possibly low impact of the programmes in terms of the number of new jobs generated as a result of them, as distinct from the number of jobs financed by them (see Bravo, Contreras and Medrano, 2004;Guzmán, 2016). Between 1989 and 1999, gross central government debt was reduced from 47% to 14% of GDP.…”

Choques macroeconómicos y reformas de las políticas: Lecciones extraídas de la desaceleración económica de 1999 en Chile

“…En esta etapa fueron preponderantes los programas de empleo indirecto, como la formación vocacional y los subsidios de duración limitada para la creación de empleo en el sector privado 12 . La aceleración de la inversión en proyectos de infraestructura pública intensivos en mano de obra también se utilizó como instrumento para aumentar la demanda de mano de obra durante la crisis (Guzmán, 2016). De esa forma se dio apoyo indirecto al empleo al incrementar la demanda de mano de obra no cualificada (predominantemente) como consecuencia del aumento de la inversión.…”

“…Las deficiencias de los programas de empleo incluyeron: i) la ausencia de un mecanismo de autoselección para incluir a los trabajadores informales; ii) la duplicación de funciones y costos administrativos entre los programas debida a la superposición de los objetivos y los posibles beneficiarios; y iii) el impacto posiblemente bajo de los programas en cuanto al número de nuevo puesto de trabajo generados como resultado de tales programas, a diferencia del número de empleos financiados (véase Bravo, Contreras y Medrano, 2004;Guzmán, 2016).…”