Employment in in Chile’s forest-based cluster

Labour outsourcing in Chile’s forest-based cluster

forstarchiv 83, 210-218 (2012) DOI 10.4432/03004112-83-210 © DLV GmbH ISSN 0300-4112 Korrespondenzadresse: tatiana.osses@waldzentrum.de Eingegangen: 13.03.2012

T. Osses et al.

Employment shifts and the role of labour outsourcing in Chile’s forest-based cluster Beschäftigungsverlagerungen und die Rolle des Outsourcing von Arbeitern im Cluster Wald und Holz von Chile Tatiana Osses, Uwe Kies and Andreas Schulte Wald-Zentrum, Westfälische Wilhelms-Universität, Hafenweg 24a, 48155 Münster, Germany

Angenommen: 16.08.2012

Abstract

Chile’s forest-based cluster has seen dynamic growth during the last decades, stimulated principally by significant state subsidies and an export orientation mainly of commodities. Major changes are induced by technological innovation, expansion and labour outsourcing in reaction to a growing global competition. The paper assesses the employment shifts and the role of outsourcing of labour in Chile’s wood and paper industries in a time series analysis of the official annual national manufacturing survey (ENIA) for the period 1998-2008. The results provide evidence for a complete structural shift of employment in Chile’s forest-based sector based to a great extent on outsourcing of labour mainly in medium and large enterprises, most notable in sawmilling, wood-based panel and paper production industries. The sharp growth of indirectly employed workers in this sector can be related to business strategies aimed at increasing international market competitiveness, which however have proved to be detrimental to social inclusion and improvement of labour condition. A strong decline in foreign direct investment and economies of scale in enlarged, technologically more advanced enterprises, which however invested barely in research and development (R&D), triggered the shift towards outsourcing during the last decade. Chile’s inefficient labour protection legislation, coupled with weak governmental law enforcement and control of the labour conditions, permitted to substantially lower labour costs associated with subcontracted low skilled work.

Key words: forest-based sector, wood industry, employment, labour utilization, outsourcing, contract workers, labour cost

Kurzfassung

Der Cluster Wald und Holz in Chile ist während der letzten Jahrzehnte gefördert durch erhebliche staatliche Subventionen und eine Ausrichtung auf den Export von Rohstoffen dynamisch gewachsen. Wichtige Veränderungen wurden durch technologische Innovation, Expansion und Outsourcing von Arbeitskräften als Reaktion auf einen zunehmenden weltweiten Wettbewerb erzielt. Der Artikel untersucht Beschäftigungsverlagerungen und die Rolle des Outsourcing in Chiles Holz-und Papierindustrien auf der Grundlage einer Zeitreihenanalyse von amtlichen Statistiken aus der jährlichen nationalen Erhebung der verarbeitenden Industrien (ENIA) für den Zeitraum 1998 bis 2008. Die Ergebnisse belegen eine komplette Verlagerung in der Beschäftigungsstruktur des Cluster Wald und Holz in Chile, was zum Großteil auf einem Outsourcing von Arbeitskräften besonders in mittleren und großen Unternehmen beruht und am stärksten in der Sägeindustrie, der Holzfertigbauindustrie und der Papierherstellung ausgeprägt ist. Der starke Anstieg von indirekten Arbeitern in diesem Sektor kann auf Geschäftsstrategien zur Stärkung der Wettbewerbsfähigkeit im globalen Kontext zurückgeführt werden, die sich jedoch als schädlich gegenüber sozialer Verantwortung und Verbesserung der Arbeitsbedingungen erwiesen haben. Ein starker Rückgang von ausländischen Direktinvestitionen sowie Skaleneffekte in vergrößerten, technologisch weiterentwickelten Unternehmen, die allerdings kaum in F&E investierten, lösten während des letzten Jahrzehnts die Verschiebung hin zum Outsourcing aus.

Chiles ineffiziente Arbeitsschutzgesetzgebung, gekoppelt mit schwacher Strafverfolgung und geringer Kontrolle der Arbeitsbedingungen, ermöglichte so die Arbeitskosten in Verbindung mit ausgelagerter, gering qualifizierter Arbeit substanziell zu verringern.

Schlüsselwörter: Cluster Wald und Holz, Holzindustrie, Beschäftigung, Arbeitsmarkt, Outsourcing, Leiharbeiter, Arbeitskosten

Introduction Chile’s forest-based cluster comprises all production chains that are based on forest resources: it integrates forestry and logging activities, wood and paper-based industries as well as suppliers and support services. In terms of exports, the Chilean forest-based sector is the third largest national sector following the mining and food sectors.

In 2008, it accounts for 3.1% of the national GDP, comprises about 14,000 enterprises, 127,000 employees and generates a total of ex210 forstarchiv 83, Heft 6 (2012), 210-218

ports of around 5.36 billion US$ FOB (free on board costs: commercial value excluding shipping and insurances). The main exported products are cellulose and sawn wood (48% and 14% of total forest products). The enterprise structure consists mainly of two types: first, large-scale, vertically integrated, globally competitive industries, and second, a multitude of small and medium-sized companies dedicated mainly to the domestic market (Luraschi 2007, Kies et al. 2008, 2009, Katz and Contreras 2009, UDEC 2009, Kies et al. 2010, INFOR 2011, Banco Central de Chile 2012, SII 2012).

Labour outsourcing in Chile’s forest-based cluster

T. Osses et al.

Chile has 13.6 million hectares of native forests and 2.4 million hectares of plantations, dominated by pine species. 90% of industrial wood in sawmilling, wood panels and pulp and paper industries originate from these highly productive plantations, which are characterized by shorter rotation periods than in countries of the northern hemisphere – a comparative advantage for Chile. 67% of the plantation area are controlled by three large corporations: Arauco, CMPC and Masisa are powerful holdings, which incorporate the entire production chain from silviculture to industrial production for national and international markets, including the ownership of ports for the export of large volumes of commodities such as pulp and wood chips. Chile accounts for 3% of the world cellulose production and the country is the fourth largest exporter worldwide. Chile’s cellulose, paper and paperboard industry is strongly concentrated: in 2005 it were still six companies, while in 2010 only two major groups Arauco and CMPC remain (Simula 2001, Luraschi 2007, FAO 2008, UDEC 2009, Katz and Contreras 2009, Chateauneuf et al. 2011, INFOR 2011).

A brief review of the forest cluster’s history: Since the second half of the 20th century, the state took an active role to develop the forest-based sector by means of a National Afforestation Plan and the foundation of public wood and cellulose enterprises. During the military dictatorship (1973 - 1990), the forest sector was privatized in line with the neoliberal model principally into four corporations and export-oriented reforms were implemented. Since 1974, the Law No. 701 promoted afforestation with subsidies as high as 75% of the planting costs, which induced a tremendous growth of the planted area and was a major input to shape today’s forest sector of Chile.

With regard to social policies, wages were kept low and the employment shifted towards temporary contracts. With the removal of the Law No. 16.757 from the Labour Plan in 1979, the outsourcing of labour became formally legalized. Besides, the economy was opened to attract foreign capital, which led to growing exports mainly of extracted natural resources. Since the democratic renewal from 1990 onwards, Chile’s export orientation however was continued and deepened free trade agreements and bilateral relations with other countries (Livermann and Vilas 2006, Miller 2006, Luraschi 2007, Valtriani 2008, Durán and López 2009, Leiva 2009, Olave 2010, Chateauneuf et al. 2011).

In reaction to the increasing competition on globalized markets, Chilean companies aimed at growth while reducing their labour costs and thus increase productivity. As a result of company fusions, large numbers of employees were dismissed and being replaced by hiring workers from external service (outsourcing). Such workers’ contracts are often associated lower wage levels, poorer working conditions and marginalized the workers from participation in the companies’ social protection and profits (Hansen 2010, Kies et al. 2010, Olave 2010, Drayse 2011, Chateauneuf et al. 2011).

This research is motivated by the known general impulses and trends in outsourcing of employment, which however has not been studied in more detail with regard to Chile’s forest-based cluster. The objective of this study is to consistently compare the contract differences in employment time series of Chile’s wood-based industries and notably analyze how and to what extent enterprises have changed their structure through outsourcing.

The hypothesis is that Chile’s forest-based sector has seen a complete structural shift of employment with a simultaneous decline of small enterprises in favor of growing large enterprises. The paper first describes the methodology and the dataset. Second, the results about structural changes of employment in the forest-based cluster and in each of its industries are presented. Finally the results are discussed in relation to groups of branches with similar trends as well as plausible factors that influence outsourcing in the forest sector.

Material and methods The analysis is based on the annual national manufacturing survey Encuesta Nacional Industrial Annual (ENIA) by Chile’s national statistics institute Instituto Nacional de Estadísticas (INE 2011). The ENIA statistical universe surveys all manufacturing enterprises with ten or more workers in accordance with the International Standard Industrial Classification of all Economic Activities Rev. 3 (ISIC).

The forest-based industries are allocated in the section D (manufacturing) to the divisions 20 (wood), 21 (paper) and 36 (furniture) (UNSD 2011).

The ENIA micro dataset for the period from 1998 and 2008 collects anonymous statistical information per individual enterprises on employment, total turnover and various other parameters. The unit ‘enterprise’ refers to manufacturing plants. A company may consist of only one plant, or be composed of many plants that are vertically and horizontally integrated within one larger company. The statistical information is also classified according to five enterprise size classes in relation to the number of employees per enterprise: 0 - 49, 50 - 199, 200 - 499, 500 - 999, 1,000 and more (compare with Table 2).

Referring to ILO (2006), outsourcing of labour is defined as a triangular employment relationship, in which a worker is employed by a company (provider) and performs subcontracted work for a third party (user). In INE’s (2011) ENIA database, ‘employees with contract’ are directly employed personnel or direct workers. So-called ‘employees without contract’ are contract workers or indirect workers, which are external personnel of the enterprise resulting from outsourcing contracts.

Missing or anonymous data for individual years have been estimated using linear interpolation. The effect of price inflation during the period is considered using national inflation rates for adjusting the turnover figures to the base year 1998. The turnover figures are expressed in U.S. dollars according to the 2008 exchange rate 1 US$ = 522 CLP (Chilean Pesos) (Banco Central de Chile 2012).

Time series analysis is used to investigate whether an increase in employment has led to shifts in subcontracted employees. The analysis focuses on the employment’s total shifts in Chile, differentiating between direct workers and indirect workers. Furthermore indices for industry size structure (number of employees per enterprise: EpE) and productivity (turnover per employee: TpE) are considered.

The results are represented in three tables and one figure: Table 1 summarizes the structure of Chile’s forest-based cluster in year 2008.

Table 2 describes the structural change of employment in each industry and the total cluster for the whole period 1998 to 2008 measured through various indices. Figure 1 compares the detailed time series of direct and indirect employees in different industries. Table 3 provides a productivity comparison with the EU.

Results Global employment structure of Chile’s forest-based cluster Chile’s forest-based sector contains a diverse structure of related industries (Table 1). In 2008, the solid wood sub-sector accounts for 278 enterprises, a turnover of 3.0 billion US$ and more than 44,000 employees or 70% of total employment in the cluster. Close to 12,000 or 27% of these are indirect workers. The cellulose subsector comprises 148 enterprises with a turnover of 4.6 billion US$, which count over 18,200 or 23% of total employees. Here, 3,100 or 21% are indirect workers.

forstarchiv 83, Heft 6 (2012), 210-218 211

Labour outsourcing in Chile’s forest-based cluster

T. Osses et al.

Table 1. Employment, enterprises and turnover in Chile’s forest cluster in 2008.

Beschäftigte, Unternehmen und Umsatz im Cluster Wald und Holz in Chile im Jahr 2008.

Industries (ISIC Rev. 3) and aggregates Solid wood sub-sector

Employment (direct and indirect) total %

Indirect workers total

%

Enterprises

% of empl.

total

%

Turnover (Mio. US$) total %

44,014

70

11,949

79

27

278

47

2,967

37

20,804

33

8,328

55

40

193

33

1,817

23

2021 Wood-based panels

7,726

12

2,675

18

35

20

3

837

10

2022 Wood construction

2,671

4

759

5

28

23

4

190

2

2023 Wood packaging

1,376

2

4

0

0

27

5

67

1

2029 Misc. wood products

1,097

2

17

0

2

15

3

56

1

10,341

17

166

1

2

165

28

464

6

18,255

23

3,136

21

17

148

25

4,628

57

2101 Paper production

6,318

10

1,731

11

27

24

4

3,297

41

2102 Paper articles

7,557

12

1,011

7

13

80

14

666

8

2109 Other paper processing

4,381

1

394

3

9

44

7

666

8

62,269

100

15,085

100

24

591

100

8,060

100

2010 Sawmilling

3610 Furniture Cellulose sub-sector

Total Cluster Share of manufacturing (%)

14

26

13

7

Data source: INE (2011)

The main industries in terms of employment belong to the primary wood processing chain and to furniture: by far the largest is the sawmilling industry with 20,800 workers and 33% of total cluster employment. 8,300 or 40% of these are indirect workers, which accounts for 55% (the largest share) of all indirect workers in the cluster.

The second largest industry is furniture production with more than 10,300 employees, of which however only 2% are indirect workers. The third and fourth largest industries are the wood-basedpanels (7,700, of which 35% are indirect workers) and the paper production (6,300, of which 27% are indirect workers).

Overall, Chile’s forest cluster comprises 591 enterprises, a total turnover of 8.1 billion US$ and 62,300 employees, of which 15,100 or 24% are indirect workers. The cluster accounts for 13% of enterprises, 7% of turnover and 14% of employees in the manufacturing industries (ISC section D) in 2008. The forest cluster’s indirect workers account however for 26% of all indirect workers in manufacturing, which shows that this trend is particularly strong within the forest-based industries (the average across all manufacturing industries is 13%).

Employment shifts in Chile’s forest-based industries Table 2 summarizes the particular structural trends and employment shifts between 1998 and 2008 per industry, measured through a set of absolute and relative structural indicators, which reveals significantly different trends in the employment structure. The forest-based industries are generally dominated by small-to-medium enterprise: although some industries reveal typical large scale enterprises structures (e. g. sawmilling, wood-based panels or paper production), the majority is characterized by less than 250 employees per plant.

The sawmilling industry shows a weak growth in employment (+13%) linked to major losses of direct workers (-5,000) and tremendous increases of indirect workers (+7,400). A concentration of enterprises is observable: their number was reduced by -30% while their structure shifted from small towards medium-sized plants (loss of -78 small enterprises, gain of +11 enterprises with more than 200 employees per plant). The bulk of new indirect workers is found in these medium and large enterprises. The average number of employees per enterprise (EpE) increased by +50%, while the nominal 212 forstarchiv 83, Heft 6 (2012), 210-218

turnover and turnover per employee (TpE) increased moderately by +20 to +35%.

The wood-based panel industry nearly doubled in employment by +3,800 (+96%) during the period. Both groups of workers increased, yet the indirect workers (+2,500) twice as strong as the direct workers (+1,200). The enterprises grew considerably in size (+5 new large enterprises, EpE +145%), coinciding with the rise of indirect workers mainly in enterprises with more than 500 employees per plant. One main reason is the strong growth of turnover (nominal +321 Mio. US$, +125%). However, productivity (TpE) improved only slightly by +15%.

The wood construction industry reveals a complete structural shift of employment: while direct workers decreased by almost -1,000 (-34%), indirect workers increased immensely by +600 (more than +300%). Small enterprises reduced significantly (-30, -75%), while the larger enterprises remained. Parallel to this concentration process, a major growth in turnover (nominal +48 Mio. US$, +57%) and productivity (TpE +80%) is observed.

In the wood packaging industry, indirect workers are not relevant.

It loses -380 or -22% of its employees, while no significant changes in the small-scale enterprise structure occur. As an effect, the TpE increases by +49%.

The furniture industry, which is a major employer, has barely indirect workers, too (just 166 or 2% in 2008). Their number even decreases by -100 (-39%) during the period across all size classes, and simultaneously with the direct workers (-347, -3%). Interestingly, the majority of indirect workers is found in small enterprises with less than 200 employees per plant. Besides, the enterprise structure and productivity (EpE, TpE) changes only slightly.

The paper production industry shows a small increase in employment, which is however triggered by a considerable reduction of direct workers (-670, -13%) in parallel to a strong increase of indirect workers (+1,274, +279%), which stands out as the highest shift within the forest sector. The newly employed indirect workers are found in the medium and very large enterprises (size classes 200-499 and ≥ 1,000) and are a main aspect of the decisive structural change in size (EpE +52%) and productivity (TpE +97%), which is induced by a major growth of turnover (nominal +1.2 billion US$, +118%).

Labour outsourcing in Chile’s forest-based cluster

T. Osses et al.

Table 2. Employment and structural shifts in Chile’s forest cluster, 1998 - 2008.

Beschäftigung und Strukturverschiebung im Cluster Wald und Holz in Chile für die Jahre 1998 bis 2008.

Parameters

2010 Sawmilling

2021 Wood-based panels

2023 Wood Packaging

2008

‘98-‘08

2008

‘98-‘08

%

2008

‘98-‘08

%

2008

‘98-‘08

%

Employees

20.804

2.384

13

7.726

3.792

96

2.671

-394

-13

1.376

-379

-22

Direct workers

12.476

-4.997

-29

5.051

1.245

33

1.912

-993

-34

1.372

-376

-21

8.328

7.381

779

2.675

2.547

>1,000

759

599

374

4

-3

-43

193

-67

-26

20

-5

-20

23

-30

-57

27

0

0

1.817

882

94

837

580

226

190

107

128

67

28

70

1.254

319

34

577

321

125

131

48

57

46

7

17

Indirect workers Enterprises Turnover real nominal (Mio. US$) EpE

%

2022 Wood Construction

108

37

52

386

229

145

116

58

101

51

-14

-22

TpE (thousand US$)

60

10

19

75

10

15

49

22

80

34

11

49

Parameters

3610 Furniture 2008

‘98-‘08

Employees total

10.341

-453

Direct workers

2101 Paper production

2102 Paper articles

Total cluster

%

2008

‘98-‘08

%

2008

‘98-‘08

%

2008

‘98-‘08

%

-4

6.318

610

11

7.557

2.615

53

62.269

8.440

16

10.175

-347

-3

4.587

-665

-13

6.546

1.820

38

47.184

-4.223

-8

Indirect workers

166

-106

-39

1.731

1.274

279

1.011

795

368

15.085

12.663

523

Enterprises total

165

-34

-17

24

-9

-27

80

33

70

591

-128

-18

Turnover real

464

148

47

3.297

2.254

216

666

308

86

8.060

4.622

134

320

4

1

2.275

1.232

118

459

101

28

5.562

2.124

62

EpE

63

8

16

263

90

52

94

-11

-10

105

30

41

TpE (thousand US$)

31

2

6

360

177

97

61

-12

-16

89

25

40

nominal (Mio. US$)

Data source: INE (2011) Notes: no percent shift value, because 1998 is zero; turnover figures are inflation adjusted in relation to the year 1998; turnover in US$ based on US$/CLP, exchange rate of 2008; total cluster excluding ISIC classes 2029 and 2129. a) 20 18 16 Employees (1,000)

14 12 10 8 6

4 2 0

6

Direct worker

Indirect worker

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Year b)

5 Employees (1,000)

The paper articles industry is characterized by a strong increase of employees (+2,600, +53%), which relates similarly to direct (+1,800) and indirect workers (almost +800). The bulk of these new indirect workers belongs to medium and large enterprises, which increased by +5 during the observation period. Remarkably, the small enterprises increased considerably in number (+28), but their number of indirect workers decreased. The enterprise structure and productivity reveals weak negative tendencies (EpE -10%, TpE -16 %).

Overall, the forest-based sector as a whole shows a total shift of +8,400 or +16% of total employees. A considerable decrease of direct workers (-4,200, -8%) is counterbalanced by a massive increase of indirect workers (+12,700, +500%). The bulk of indirect workers are found in medium enterprises, except for paper production and wood-based panels industries, where the most belong to large industries. The size of enterprises and turnover per employee productivity increased in average by +40%., the turnover increases by about 2,120 Mio. US$ or 62 %.

Figure 1 depicts the gradual yearly changes of direct and indirect employment in the sawmilling and wood-based industries. Three trend phases can be observed in direct employment: the initial years 1998 to 2001 show a considerable decline in sawmilling. From the year 2000/2001 onwards, a moderate increase in direct employees occurs in wood-based panels until 2008. In sawmilling however, another second decline phase occurs from the year 2005/2006 on-

4 3 2 1

Figure 1. Time series of employment in Chile’s a) sawmilling and b) wood-based panel industries, 1998-2008. Data source: INE (2011).

Zeitreihe der Beschäftigung in Chiles a) Säge- und b) Holzwerkstoffindustrie für die Jahre 1998 bis 2008.

0

Direct worker

Indirect worker

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Year

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Labour outsourcing in Chile’s forest-based cluster

wards. In the indirect workers’ time series the year 1999 clearly marks the beginning of outsourcing in Chile’s forest-based sector, where enterprises begin to replace direct workers. During the following years, a continuous increase of indirect workers is observed in both industries. The year 2005/2006 again marks a turning point, from which on the growth trend is reversed (sawmilling), or the level of indirect workers remains stable (wood-based panels).

Discussion General trend of labour outsourcing in Chile Subcontracting has grown significantly in Chile over the past 19 years and is one of the fundamental pillars of the ‘successful’ export model. Outsourcing is understood in the context of a constantly changing economic environment that requires the companies to create more flexible strategies towards the labour market. Outsourcing of labour was stimulated in particular by the Labour Plan in 1979 revoking the Law No. 16.757, which prohibited sub-contractors, grantees and routine servicing of equipment in the producing industries. Outsourcing is not a marginal phenomenon, but a significant reality important to the existence of enterprises and employment in forest-based sector, not only in Chile (Klein et al. 2009, Leiva 2009, Echeverría 2010, Hansen 2010, Olave 2010, Drayse 2011).

Durán and López (2009) indicate that outsourcing of labour increased rapidly when large user enterprises developed extensive networks based on contracted work and services provided by hundreds of small and medium enterprises. Following the rapid increase of indirect workers during the late nineties, outsourcing reaches its highest point in 2004 (50% of total workforce). The trend reverses from 2006 onwards as a result of the mobilizations of contract workers in forestry and mining industries, which eventually led to the approbation of a new contract law (Law No. 20.123) (Direccion del Trabajo 2008, Durán and López 2009, Echeverría 2010). However, several manufacturing industries steadily increase their share of indirect workers from 1999 until 2007 (SOFOFA 2000, 2007), as was also observed in this research.

In 2007, large enterprises are the ones that employ most often external employees (80% of the enterprises), followed by medium (65%) and small (47%). The largest proportion of indirect workers in relation to direct workers occurs in the pulp and paper sector (68%), followed by the food sector (52%) and the wood and furniture industries (32%). The forest-based industries reveal a particularly high concentration of indirect workers, with significantly lower wages, more precarious safety measures and higher accident rates compared to employees with a full contract. Outsourcing strategies profoundly changed the business organization of work and affected the effectiveness of labour rights (SOFOFA 2007, Echeverría 2010, Díaz et al. 2009).

Contrasting changes in the employment structure of Chile’s forest-based industries The analysis of specific trends in the forest-based industries between 1998 and 2008 reveals a complete structural shift of employment, triggered through increased outsourcing of labour by medium-large enterprises. The results identify three distinguishable groups of industries with particular structural trends.

Group 1 comprises sawmilling, wood construction and paper production, which show a strong structural change by dismissing or reducing direct workers and increasing the number of indirect workers by more than 200%. In the wood industries, the majority of indirect workers are found in medium enterprises, while in paper industries 214 forstarchiv 83, Heft 6 (2012), 210-218

T. Osses et al.

they mostly belong to large enterprises. This group shows tendencies towards strong concentration and growth in the size of enterprises related to considerable growth in productivity.

Group 2 includes wood based-panels and paper articles, which both are marked by a strong, above 50%-increase of total employment. This increase occurs moderate among direct employees and significantly strong among indirect workers (by more than 350%), again with the majority found in medium and large enterprises. The structural tendency in size and productivity is however not similar: the wood-based panel enterprises grow in size and TpE productivity, while the paper article industries increase in small enterprises (+96%) and decrease moderately in TpE. Group 3 comprises wood packaging and furniture, which reveal overall decreasing employment tendencies linked to increased productivity, which is however not linked to outsourcing, because indirect workers make up only a marginal share in total employment.

Outsourcing and competitiveness in foreign export markets Chile’s neoliberal strategy is considered the most radical and enforced in Latin America, characterized by strong trade liberalization, structural reforms to attract foreign direct investment (FDI), privatization of state enterprises and a strong concentration of capital. In fact, Chile increased its GDP by 41% from 1996 to 2005 by triggering a dynamic development of the competitive advantages of its natural resources, which gave rise to emerging industrial clusters specialized in forestry products, wine, salmon and fresh fruits (Jäger 2000, Ffrench-Davis 2002, Cok and Ríos 2010, Marshall and Rodriguez 2010, Banco Central de Chile 2012).

The enterprises used outsourcing as the major means to reduce production and labour costs. The industries identified in the groups 1 and 2 employ the largest numbers of indirect workers and are especially export-oriented. The value of exported forest products, which represent 8% of total exports, experienced constant growth from 1.7 to 5.2 billion US$ FOB from 1998 to 2008 (INFOR 2011, 2012, Banco Central de Chile 2012). The principal exporters are paper production (48%), sawmilling (19%), paper articles (11%) and wood-based panels (10%), all belonging to group 1 and 2. The export share of the production, which increased considerably during the period, is 82% in pulp and 60% in sawn wood and wood-based panels. Although 750 companies are involved in export, only around 200 companies exported continuously throughout the 2002-2008 period. Furthermore, the two major forest-based groups Arauco and CMPC represented 61% in 2002 and 72% in 2008 of total forest products exports (UDEC 2009, Chateauneuf et al. 2011).

The wood packaging and furniture industries (group 3) produce for domestic consumption and are thus not dependant on international markets, which can give an indication why their share of indirect workers remains negligible (INFOR 2009c).

The exporting wood industries showed a high dependence on a few clients and a high concentration in the U.S.A. market (28% in 2006) making them vulnerable to fluctuations of the international economy. The U.S.A. subprime mortgage crisis of 2007 led to a drop of exports by -33% (2006 - 2008), 60 mainly small and medium closed enterprises and around 10,000 lost jobs in these industries.

Especially sawmilling and paper production (both primary processing industries) portray this effect of the U.S.A. crisis, where both direct and indirect workers show a sharp decrease from 2007 to 2008 (Figure 1). Since this international crisis, especially the sawmilling companies are trying to diversify their strategic market orientation and improve their competitiveness by technology investments and even more labour flexibility via outsourcing (Felzensztein and Gimmon 2008, Tomaselli 2009, INFOR 2009a).

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Chile shows the highest forest-based sector growth among the Latin American and Caribbean (LAC) countries and belongs (together with Brazil) to the most dynamic countries in terms of FDI. The wood industries received around 9.1 US$ or 24% of the total FDI in manufacturing in 2008, while paper industries (including printing and publishing) accounted for only 1%. Overall, FDI in the wood industries increased by +73% from 1998 to 2008, while in contrast FDI in the paper industries decreased by -96%. It is remarkable that the year 2004, from which onwards the paper industries received less FDI, coincides with a sudden sharp increase of indirect workers.

During 2001-2007, FDI also declined in the wood industries, which were the years when indirect workers increased significantly in sawmilling and wood-based panels industries (Valtriani 2008, Alvarado 2009, Foreign Investment Committee 2012).

Size and technological level of enterprises Even though the number of small enterprises with less than 49 employees per plant is greatly reduced during the period of study (notably wood construction -75%, wood-based panels -86%), they still account for 57% of the enterprises in the cluster in 2008. The largest shares of small enterprises are found in the sawmilling and furniture industries (36% each). As also pointed out by Alvarado (2009), SMEs represent 90% of employment in the forest-based sector, but remain behind the standard of technological development and are lacking suitable policies to support their conversion. On the other hand, a number of new large and medium enterprises with more than 200 employees per plant was founded (sawmilling, wood based-panels and paper production) and had led to a strong increase in outsourcing. Consequently, the major number of indirect workers in 2008, following a complete structural change, is concentrated in these industries, which benefits the enterprises through labour cost reduction and incremental capital returns, but turns out to be detrimental to labour conditions.

A distinguishing feature of the pulp and paper industry is its largescale, high technological level and tendency to develop economies of scale through technological innovations. It is by far less demanding in employees than other industries: although it creates 41% of total turnover in the forest cluster, it accounts only for 11% of employees (Table 1). Chile’s pulp industry ranks as the fourth largest world exporter and its productivity (TpE: 453) is similar to Western European countries (TPE: 523) (FAO 2008, INFOR 2009a, Luraschi 2007).

Labour productivity and outsourcing Chile’s forest-based industries broadly increased their productivity in terms of output per employee between 1998 and 2008: sawmilling from 286 to 370 tons per employee, wood-based panels from 250 to 323 tons per employee, paper production from 400 to 1,176 tons per employee (own calculations based on INFOR 2012). Accord-

ing to Marcel (2007), this trend in employment implies a growing process of capitalization of the sector, favouring the concentration of income, return on equity and increasing unemployment. Despite the Chilean forest sector’s high growth rates in production and trade, indicators demonstrating a beneficial impact on the social environment, notably employment and poverty in local communities are not existent (Luraschi 2007).

In fact, the increase of productivity in sawmilling is related to this industry’s low demand in skilled technical and managerial personnel, which accounted for only 6% of total employees in 2008 (INFOR 2009b, c). As the sub-contracted indirect worker is normally a lowskilled worker, it is plausible that the sawmilling industry reveals the highest percentage of indirect workers (40% of total employees in 2008), as a result of large dismissals of -5,000 direct workers who were replaced by nearly +7,400 indirect workers during the period.

On the other hand, according to OECD (2009), Chile’s GDP per capita was 18% of the GDP of the USA two decades ago; by 2006 it had reached 29%, above the level of Mexico and close to the level of Poland. However, there is still a long way to go as the newly created jobs in Chile are often characterized by low productivity, low pay and poor working conditions, and informal employment and income inequality remains high compared to OECD countries.

Table 3 compares TpE productivity of the four main industries in Chile with comparable indices for the EU. First, a methodological note must be considered: contrary to the European EUROSTAT data source, the Chilean INE statistical source does not include enterprises with less than 10 employees. The TpE indices are therefore only comparable in the sense of a general indicator, not a precise measure. In fact, therefore the notable gap between Chile and the EU must be considered to be even higher in reality.

Chile’s sawmill industry productivity ranges at the level of Eastern EU countries (TpE: 56) and thus is six times less productive than Western EU countries. The Chilean wood-based panel industries range on an even lower level, because they are two times less productive than the Eastern EU (TpE: 146) and five times less than the Western EU (TpE: 302). Chile’s paper production increased significantly in productivity and reached a level close to several EU countries (TpE: Chile 360; EU 542). However, the Chilean paper manufacturing industries remain decisively below EU countries.

Profit-oriented competitiveness detrimental to labour condition Subcontracting emerges as a means to drastically cut labour costs.

Chilean labour costs in forest-based industries are considerably lower than in the United States of America or Scandinavian countries.

In the Chilean agricultural context, the forestry sector’s wages are roughly 50% and 15 % below wages in the Chilean salmon and livestock industries. The forestry sector has in average one of the lowest wage levels of all the productive sectors in Chile. Furthermore, enterprises are often divided on purpose as a strategy to install social

Table 3. Labour productivity in 2008, comparison between Chile and EU. Vergleich der Arbeitsproduktivität von Chile und der EU im Jahr 2008.

Industries (ISIC Rev. 3) 2010 Sawmilling 2021 Wood-based panel 2101 Paper production 2102 Paper articles

Chile 60 75 360 61

Turnover per employee (thousand US$) EU Western EU 187 352 302 402 542 590 278 321

Eastern EU 56 146 237 116

Data sources: INE 2011; EUROSTAT 2012.

Notes: turnover in US$ based on US$/CLP exchange rate of 2008.

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T. Osses et al.

control capabilities. Indeed, subcontracting reduces the bargaining power of unions, discipline of the workforce and, most notably, the wage levels (Catalan et al. 2007, Catalan and Cozzens 2009, Jordana and Torres 2009, Caldentey 2012).

As an example, Arauco, one of Chile’s three largest forest-based corporations, operates with about 880 contractors, of which 577 are located in Chile. In 2007, Arauco faced a strong mobilization of contract workers reclaiming wages exceeding the national minimum and more certainty about the duration of employment to improve their precarious situation. The workers demanded a 40 percent increase of salaries opposed to a 4.5 percent offered by the entrepreneurs, pointing out that Arauco’s recorded sales in 2006 figured US$ 2,850 Mio., with profits of US$ 619 million, equivalent to nearly US$ 2 Mio. profit per day and a 41 percent increase compared to 2005. Following a continuous strike and the death of a worker, a situation that led to the disapproval of international entities (such as BWI 2007a, b, c, ILO 2008), the salaries were finally increased by 40%, which would not have been possible through legal strikes. Such labour disputes between workers and company owners continue until today. In fact, Chilean forestry workers mobilized again in July 2012 to fight for labour rights such as minimum wage, anti-union practices by companies. Claiming a lack of transparency of FSC-certified companies engaged in anti-union practices, they point out the need for reformation of the sector based on the concept of sustainability (BWI 2012a, b).

The Chilean model of economic development has resulted in considerable degrees of income concentration, strong market power and wealth of the elites and economic conglomerates (ARAUCO 2007, Daroch 2007, Durán and López 2009, Solimano 2009). Chile is the fourth largest exporter of pulp worldwide in 2007 (8% of total) and 82% of its production are exported, while the other top 10 exporting countries such as Canada, Brazil or USA export not more than 55% of its total production (Table 4). In relation to the TpE, Chile ranks first among the top 10 exporters worldwide with 111.8 Mio. US$, followed by Brazil (94.6 Mio. US$), Finland (92.7 Mio. US$) and Canada (91.1 Mio. US$). This gap is more significant in comparison

to the EU (5.9 Mio. US$ on average). The Chilean manufacturing industry also shows the highest TpE (24 Mio. US$) in relation to the top 10 exporting countries, however, it is almost 5 times lower than the Chilean paper industry. All these facts highlight the disproportionally high profit margins earned by Chilean paper industry entrepreneurs at the expense of the comparatively poorly paid workers.

Chile is widely considered the most stable country in Latin America. It reveals the best overall country risk rating for investments in forestry in Latin America, more attractive than Argentine and Brazil. Besides low costs of stumpage prices, inherent advantages of fast growth rates, high prices for exotic timber species on forest land and significant government subsidies, the low labour costs obtained via outsourcing clearly are a decisive factor in such rankings. Unfortunately, the Chilean state policy favoured large economic corporations as well as multinationals in the forestry industry, leading to high levels of inequality in earnings and income in Chile (Pizarro 2005, Cubbage et al. 2007, OECD 2009).

Furthermore, Chilean cellulose entrepreneurs invest only insignificantly into research and development (R&D), even though the high profit margins would easily permit it. Comparing Chile to the internationally outstanding example of Finland, a country with equally rich natural resources endowments, illustrates the lost opportunities for regional development. Following a strong development of its forest industries during the twentieth century, Finland was able to implement an innovation-oriented development strategy allowing it to step up into a knowledge economy that creates higher levels of added value of its natural resources (Muñoz and Muñoz 2006, Catalan et al. 2007, Catalan and Cozzens 2009, Caldentey 2012). In contrast to Chile’s inefficient labour protection legislation, the Finnish labour legislation is exceptionally progressive, and hence a reduction of production costs is achieved via investments in R&D, and not for the sake of workers’ rights. Compared to such international standards, Chile’s forest-based industries are considered far from socially sustainable (Pakkasvirta 2008, Durán and López 2009, OECD 2009, ILO 2011).

Table 4. World’s top 10 pulp exporting countries and turnover per enterprise in 2007.

Top 10 der Zellstoff-exportierenden Länder und Umsatz pro Unternehmen im Jahr 2007.

Export* World ranking

Turnover per enterprise (Mio. US$)**

Countries

Quantity (thousand tons) 2007

Share of country production (%) 2007

Share of world exports (%) 2007

Paper production industry 2007

Manufacture industry 2007

1

Canada

10.619

47,0

22,1

91,1

8,2

2

Brazil

6.571

54,4

13,7

94,6

5,1

3

USA

6.474

11,6

13,5

42,8

14,7

4

Chile

3.859

82,5

8,0

111,8

24,0

5

Sweden

3.504

27,8

7,3

32,3

4,6

6

Finland

2.552

19,8

5,3

92,7

0,0

7

Indonesia

2.439

47,1

5,1

nd

nd

8

Russia

1.899

27,0

4,0

nd

nd

9

Spain

1.126

54,1

2,3

3,3

3,6

10

Portugal

1.040

49,7

2,2

4,7

1,2

EU

12.638

30,6

26,3

5,9

4,3

World

48.057

26,6

100,0

nd

nd

Data sources: *Statistics Canada 2012 (industries by NAICS 2007); IBGE 2012 (industries NACE Rev 1.1); U.S. Census 2012 (industries by NAICS 2007); INE 2011 (industries

by ISIC Rev 3); EUROSTAT 2012 (industries by NACE Rev 1.1); **FAOSTAT 2012.

Notes: nd = no data; turnover in US$ based on US$/CA$ (Canada), US$/BRL (Brazil), US$/CLP and US$/EUR (EU27) exchange rate of 2007.

216 forstarchiv 83, Heft 6 (2012), 210-218

T. Osses et al.

In conclusion, this research provides evidence for major shifts in the structure of employment in Chile’s forest-based industries, with however specific and partly contrasting trends among the industries under study. The strongest shifts become visible in the primary wood processing industries sawmilling, wood-based panels and paper production, which install the system of labour outsourcing on a large scale. These shifts go along with considerable restructuring of the enterprises, which strongly concentrate and gain in size. Suggested factors behind the depicted rise in labour outsourcing comprise: • Exclusively profit orientated business strategies to increase market competitiveness, detrimental to social inclusion and progress of labour conditions, • Decreasing FDI in forest-based industries since 1998 as a major trigger for outsourcing, • Economies of scale in enlarged, technologically advanced, less labour demanding enterprises, • Lower labour costs associated with subcontracted low skilled work, • Chile’s inefficient labour protection legislation, coupled with weak governmental law enforcement and control of the labour conditions.

Acknowledgments

The authors would like to thank the staff members of the Instituto Nacional de Estadisticas [National Statistics Institute of Chile], Santiago, Chile, for providing background information about and access to their statistical information systems. The research was financially supported through a scholarship for doctoral graduation by the Deutscher Akademischer Austausch Dienst (DAAD), Bonn, and the Internationales Institut für Wald und Holz NRW e. V. at the Westfälische Wilhelms-Universität Münster, Germany.

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