Going for Growth - Chile

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Chile The convergence in GDP per capita to the upper half of OECD countries has been among the most rapid in the OECD over the last decades. However, progress has stopped after 2013, reflecting weak employment growth and a decline in total factor productivity growth.

While still high, income inequality and poverty have declined substantially and are lower than in other countries of the region. Chile’s reliance on natural resources as a source of growth has increased risk of water shortages, habitat loss, and soil and water contamination. Greenhouse gas emissions per capita are well below the OECD average, but CO2 and energy intensity have been declining only very slowly over the past two decades.

Ongoing improvements in the education sector, reforms in the labour market, the implementation of the 2014-18 Productivity Agenda, and efforts to raise the efficiency of electricity markets, and the sustainability of the pension system have aimed at tackling the main Chilean growth challenges.

Strengthening skills, continued increase in the quality of education and reforms and providing training systems would benefit the unemployed and inactive and thereby enhance overall employment activity. Better childcare would facilitate the inclusion of women in the labour force. Reforming employment protection legislation would reduce the segmentation of the labour market. Further simplification of trade and regulatory procedures, reforms in the transport sector and innovation support would strengthen productivity.

Growth performance, inequality and environment indicators: Chile Average annual growth rates (%) GDP per capita Labour utilisation of which: Labour force participation rate

A. Growth

Employment rate1 Employment coefficient2 Labour productivity of which: Capital deepening Total factor productivity Dependency ratio

2012-18 1.4 0.3 0.3 -0.1 0.0 0.9 1.2 -0.3 0.2

Level

Annual variation (percentage points)

2015 45.4 (31.7)*

2013-15 -0.6 (0)*

-50

5.1 (7.6)*

0.1 (0)*

-60

2016 3.8 (10.9)* 0.2 (0.3)* 0.2

Average of levels 2010-16 3.8 (11.3)* 0.2 (0.3)* 0.2

B. Inequality and environment

Gini coefficient3 Share of national disposable income held by the poorest 20%

GHG emissions per capita4 (tonnes of CO2 equivalent) GHG emissions per unit of GDP4 (kg of CO2 equivalent per USD) Share in global GHG emissions4 (%) * OECD simple average (weighted average for emissions data)

C. The gap in GDP per capita has stopped narrowing

2002-08 4.2 1.3 1.0 0.4 0.0 2.3 0.9 1.4 0.5

Gap to the upper half of OECD countries5 Per cent 0 -10 -20 -30 -40

-70 GDP per capita

GDP per hour worked

-80

Source: Panel A: OECD, Economic Outlook Database; Panel B: OECD, Income Distribution and National Accounts Databases; United Nations Framework Convention on Climate Change (UNFCCC) Database and International Energy Agency (IEA), Energy Database; Panel C: OECD, National Accounts and Productivity Databases; Chile Instituto Nacional de Estadísticas.

StatLink 2 https://doi.org/10.1787/888933954724

ECONOMIC POLICY REFORMS 2019: GOING FOR GROWTH © OECD 2019

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Policy indicators: Chile A. Support for business R&D is very low

B. Student performance is weak

Percentage of GDP, 2016

0.25 0.20

Average of PISA scores in mathematics, science and reading, 2015 500

Indirect funding (R&D tax incentives) Direct government funding of R&D

475 450

0.15

425 0.10

400

0.05 0.00

375

Advanced economies

CHILE

CHILE

Advanced economies

350

Source: Panel A: OECD, Main Science and Technology Indicators and R&D Tax Incentives Databases; Panel B: OECD, PISA Database.

StatLink 2 https://doi.org/10.1787/888933955598

Beyond GDP per capita: Chile A. Inequality has decreased but remains significantly higher than in advanced economies Gini coefficient, 2016 or last available year¹

SVK, 24.1

CHILE, 45.4

Advanced economies median, 29.7

ZAF, 63.0

Emerging economies median, 46.2

B. Exposure to fine particulate matter is higher than in advanced economies Percentage of population exposed to PM2.5, 20172

% CHILE Advanced economies

< 10 μg/m³ 10-35 μg/m³

Emerging economies

> 35 μg/m³

World 0

10

20

30

40

50

60

70

80

90

100

Source: Panel A: OECD, Income Distribution Database, World Bank, World Development Indicators Database and China National Bureau of Statistics; Panel B: OECD, Environment Database.

Note: For the explanation of the sets of indicators above, please go to the metadata annex at the end of this chapter.

StatLink 2 https://doi.org/10.1787/888933956472

ECONOMIC POLICY REFORMS 2019: GOING FOR GROWTH © OECD 2019

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Chile: Going for Growth 2019 priorities Improve quality and equity of the education system. Limited and unequal access to high-quality education lowers outcome, inhibits productivity and increases income inequality.

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Actions taken: In 2018 two laws related to Higher Education were approved, creating a National System for Quality Assurance of Higher Education (SINACES), the Superintendence and Undersecretary of Higher Education and strengthening the power of the National Council to develop a National Training Strategy of vocational technical education. The laws also address the institutional funding for public universities and establish free higher education for students that belong to the bottom 60% of the income distribution.

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Recommendations: Continue ongoing efforts to improve quality at all levels of education.

Strengthen vocational education by updating curricula to better reflect job market needs and enhancing work-based learning trough apprenticeships. Develop a national skill assessment and labour market needs exercise to reduce skill mismatches. The higher-education funding system needs to better balance access and quality.

Enhance competition and ease regulatory procedures. Strengthening product market competition and facilitating regulatory procedures and licenses for businesses would boost productivity.

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Actions taken: A 2018 project aims at simplifying procedures and licenses. Measures included are enabling municipalities to hand over a provisional patent for two years for all those firms that comply with the requirements established by law, creating an office for big projects, reducing the time and number of procedures related to water permits and creating a one-stop shop for licensing from different sectors. In August 2018, the “Open” office to reducing bureaucracy and the “GPS” office (for large sustainable projects) to guide and help big investment projects to obtain licenses and permits, were opened.

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Recommendations: Systematically review competitive pressures in key sectors, such as telecommunications and maritime services, by conducting market studies and applying the guidelines of the OECD’s Competition Assessment Toolkit. Ensure that public entities have to comply with the Competition Agency recommendations or to publicly explain their decisions.

Streamline permits and their processing to encourage investment. Simplify regulations that depend on firm size, such as mandatory childcare provision, to limit their impact on firm growth.

Ease employment protection legislation and enhance active labour market policies. Lowering severance pay for regular workers can reduce labour market segmentation, while improving training programmes could foster access to high-quality jobs.

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Actions taken: Firms are now allowed to use the tax credit for on-the-job training (Impulsa Personas) to finance evaluation and certification of competencies, levelling programmes for basic and adult education and conducting a study on training needs within their sector.

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Recommendations: Reduce dismissal costs for permanent contracts and increase coverage of unemployment benefits by reducing the minimum contribution periods. Better target firm-provided training programmes to the most vulnerable workers. Continuously evaluate active labour market policies, public and firm-provided training, to focus funding on those that are performing well.

Strengthen support to R&D and innovation. Low investment in innovation and R&D hinder productivity and are associated with a persistent dependence of exports on mostly natural resources.

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Actions taken: Chile has developed significant efforts through its development agency, CORFO, to target promising sectors, in particular through direct R&D support. Moreover, the creation of the Ministry of Science, Technology, Knowledge and Innovation in 2018 seeks to raise the profile of science in Chile and increase the government’s funding for research and innovation.

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Recommendations: Strengthen policy evaluation by beefing-up data collection, systematic reviews and independent studies. Expand R&D support programmes that are proven to work, and close down or adjust inefficient ones.

Strengthen policies to foster female labour force participation. Encouraging more women to join the labour market can increase employment, contributing to growth.

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Actions taken: The reform of the early childhood education and care system is being implemented by creating new institutions in charge of monitoring, updating curricula and setting quality standards. Childcare centres (for children aged 0-5) are being built and more than 38 000 new places were created in 2017.

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Recommendations: Further increase affordable good-quality childcare for the poorest children and in rural areas, and expand opening hours for childcare institutions. Eliminate the requirement for firms to finance childcare once they employ 20 female workers or more. Foster women’s and girls’ equal access to academic fields which are usually dominated by men by providing information on labour market outcomes. Raise awareness among young men and women, parents, teachers and employers about gender-stereotypical attitudes towards academic performances.

ECONOMIC POLICY REFORMS 2019: GOING FOR GROWTH © OECD 2019