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P 241709Z DEC 08
FM AMEMBASSY SANTIAGO
TO RUEHC/SECSTATE WASHDC PRIORITY 4208
INFO RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS PRIORITY
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UNCLAS SECTION 01 OF 02 SANTIAGO 001151 
 
SIPDIS 
 
DOL FOR ILAB--CHANTENIA GAY 
STATE FOR DRL/ILCSR--RIGGS, WHA/BSC, INR/B 
 
E.O. 12958: N/A 
TAGS: PGOV ELAB SOCI ECON CI
SUBJECT: CHILE'S LABOR CHALLENGES:  COMBATING UNEMPLOYMENT, 
SUNDAY/HOLIDAY PAY CONTROVERSY, AND PENSION REFORM 
 
REF:  A) SANTIAGO 1144 
B) SANTIAGO 174 
C) SANTIAGO 1025 
 
SANTIAGO 00001151  001.2 OF 002 
 
 
¶1.  SUMMARY:  Chile's new Labor Minister, Claudia Serrano, faces 
pressing challenges in creating--or at least maintaining--jobs 
despite the economic slowdown, resolving a public policy dispute 
about Sunday and holiday pay, and implementing ambitious reforms to 
Chile's pension system.  The private sector is nervous about a 
potential rise in unemployment.  Workers, however, seem to be 
unlikely to compromise, with most saying that they are unwilling to 
take a temporary pay cut to avoid job losses and government workers 
having recently won a 10 percent wage increase.  END SUMMARY. 
 
FEARS OF RISING UNEMPLOYMENT 
---------------------------- 
 
¶2.  New Labor Minister Claudia Serrano, who took office December 15 
(Ref A), faces a significant challenge in combating the threat of 
rising unemployment as a result of the global financial crisis. 
Immediately after Serrano's swearing-in ceremony, President Bachelet 
announced the formation of a new National Employment Commission, to 
be presided over by Minister of Interior Edmundo Perez Yoma.  The 
commission will be charged with formulating Chile's employment 
promotion policies in the wake of the economic crisis.  Bachelet 
emphasized the need to "coordinate with both the private sector and 
workers' organizations to design strategies so that Chile's 
unemployment rate doesn't reach double digits at the national 
level." 
 
¶3.  Ministry of Labor official Enrique Perez Mendoza told Poloff and 
Pol Specialist December 22 that employment statistics have been 
relatively steady so far, but are likely to drop in May or June as 
seasonal workers currently working on farms may have difficulty 
finding work during the Chilean winter.  Perez stated that Serrano 
should ensure that job creation programs actually make an economic 
contribution to society, rather than just providing subsidies to 
idled workers or engaging them in unproductive activity.  (Note: 
Perez is President of the Santiago branch of the Association of 
Ministry of Labor Professionals (APU), a union for professionals 
within the Labor Ministry's Labor Directorate.  End Note.) 
 
CONTROVERSY OVER EXPANDED "SEMANA CORRIDA" SUNDAY/HOLIDAY PAY 
---------------------------- -------------------------------- 
 
¶4.  Perez highlighted the controversy over "semana corrida" pay as 
one of the most pressing issues confronting the new minister.  The 
lowest stratum of Chilean workers--who often have "flexible" wages 
that vary by day according to output--are legally entitled to extra 
pay on Sunday and holidays equivalent to what they earn in a typical 
workday.  This practice is designed to ensure that even low wage 
workers can take one day off each week while minimizing the 
financial impact of this break.  This provision does not apply to 
salaried workers.  However, some unscrupulous employers have 
circumvented this rule by paying their workers a nominal base wage 
to supplement largely output- or bonus-based compensation.  They 
then claim that, as "salaried workers," their employees are exempt 
from Sunday and holiday provisions despite earning the overwhelming 
majority of their wages in a flexible manner. 
 
¶5.  In an attempt to try to correct this loophole, the Chilean 
Congress included a provision in its 2008 Minimum Wage Law which 
said that anyone who receives flexible wages--such as bonuses, tips, 
or piece-rate wages--must also receive semana corrida payments on 
the flexible portions of their wages for Sundays and holidays. 
Perez stated that at the time the law was drafted and passed, 
parliamentarians didn't realize that this provision would affect 
large numbers of Chilean employees--particularly in the construction 
and retail sectors--who have base wages above the minimum of 159,000 
pesos (approximately USD 250) per month. 
 
¶6.  Employers, many of whom fear that Chile will begin to suffer 
seriously from the global financial crisis in the coming months, are 
crying foul and asking the government to revise the law.  Perez 
reported that one study by the retail association indicated that 
salary costs in the sector could rise by 15 percent when this 
provision of the law takes effect in January 2009.  Some retail 
companies have already announced that they will enact more 
conservative employment practices in anticipation of lower 
consumption.  Finance Minister Andres Velasco is said to be 
sympathetic to these concerns and is also calling for changes to the 
law. 
 
PENSION REFORM 
-------------- 
 
 
SANTIAGO 00001151  002.2 OF 002 
 
 
¶7.  Serrano also inherits Chile's ambitious social security reform 
effort, one of the most significant reforms that the Bachelet 
government proposed (Ref B).  In January 2008, the Chilean Congress 
passed a comprehensive reform package designed to extend coverage, 
increase the minimum pension, reduce costs, and create incentives 
for additional voluntary savings.  The task of implementing this 
major reform will fall largely to Serrano and her successor. 
 
COMMENT 
------- 
 
¶8.  Serrano faces the serious challenge of protecting workers' 
interests while also being flexible and realistic as the global 
financial crisis makes itself felt in Chile.  While many Chilean 
business owners fear that a significant rise in unemployment is 
inevitable, workers do not seem to be worried, or at least are not 
willing to make personal sacrifices in exchange for greater job 
security.  A recent study by the University of Development found 
that about only 26 percent of workers would be willing to take a 
temporary pay cut in order to avoid being laid off.  And Chile's 
unions are in no mood to bargain, particularly given that civil 
servants just won a 10 percent pay raise (Ref C).  Finding common 
ground between workers, government, and employers on the issues of 
job creation and the Sunday/holiday pay issue will be a tall order 
for the new minister.  End Comment. 
 
URBAN