Chile has enjoyed an impressive economic performance over the past two decades. Apart from a cyclical slowdown during 1998-2003, real GDP increased by nearly 6 % per year over the period 1985-2007. Despite relatively strong population growth – up from 12.1 million in 1985 to 16.6 million in 2007 –, real GDP per capita rose by 4.3% per year over the past two decades. This impressive performance has resulted in a significant catching up with the OECD countries: two decades ago Chile’s GDP per capita was 18% that of the United States; by 2006, it had reached 29%, above the level in Mexico and close to that of Poland. The national poverty rate has also been reduced dramatically, from almost 39% of the total population in 1990 to less than 14% in 2006, with the share of individuals living in extreme poverty down to close to 3% in 2006, from about 10% in 1990.

Chile’s unequal income distribution is linked with relatively low employment and a segmented labour market, two factors that also contribute to the difficulties in extending social protection to the whole population. Despite strong and sustained economic growth, job creation has been insufficient to give opportunities to under-represented groups and to cope with a growing working-age population. For women and youth, in particular, employment rates are low by OECD standards. The manufacturing sector’s share in total employment declined in the 1990s, after which it has been mostly stagnant at a low level for a country at Chile’s development stage. Informal employment is less widespread than elsewhere in Latin America, but still sizeable by OECD standards. The recent job creation has occurred partly in sectors that employ many high-skilled workers, but also in the areas where jobs tend to be low-productive and precarious.

To create more and better jobs, Chile needs to pursue its recent efforts to develop a strategy for work and equity. While partly successful, this policy endeavour is facing many obstacles, including not only limited resources and administrative capacity but also a weak social dialogue and many conflicting interests in a segmented labour market. The OECD Reassessed Jobs Strategy and the international experience of policy compromises for “flexicurity” are therefore relevant. This chapter considers the principal issues of labour market policy in Chile from such a perspective. 

Strong growth in economic prosperity has led to increased demands for a more inclusive society, with a more equal distribution of income and opportunities. So far, Chilean social policies for the working-age population have focused on developing health, housing and education policies (pension policies are discussed elsewhere). Using a combination of home visits and questionnaires, Chilean policy has been able to identify many of those in need and target support to low-income households. However, gaps in coverage remain, especially in rural areas. Other challenges remain, not least extending the local capacity to deliver services. Concerns about the quality of services have also been raised. This chapter gives a summary of education, health and housing policies, and analyses social policies, in view of the public resources put into them, their redistributive power, and their ability to identify clients and successfully target policies at those who are most urgently in need of support. The chapter looks at how the “holistic” approach of social service delivery in the Chile Solidario package helps clients to achieve better outcomes. The chapter concludes by looking ahead and discussing future Chilean social policy development, in particular the emerging issue of how to design and introduce a system of financial transfers to working-age families without weakening financial incentives to work.

Chile replaced its Pay-As-You-Go social insurance pension system in the early 1980s with a private pre-funded system of individual savings accounts which covers old-age, disability and survivor contingencies. Pension reform was successful in many ways: it restored public confidence in pension saving; pre-funding of pensions has contributed to the development of financial markets and economic growth; and projected future public pension outlays in Chile are lower than in many OECD countries (and far less susceptible to the dynamics of ageing populations). However, pension reform failed to achieve its coverage objectives, and many Chilean workers, including many women, youth and low-income workers with low levels of educational attainment, either did not make sufficient contributions to obtain an adequate contributory pension or have no coverage at all. The coverage problems contributed to a major pension reform in 2008, which introduced a basic solidarity pension as of right, and targeted measures to stimulate coverage among workers with no or little pension saving. Reform also aims to develop a third tier of voluntary private pension saving. In all, Chile’s pension system is developing towards the three-pillar pension norm, which is often held as an international benchmark. This chapter discusses the social policy aspects of the reformed pension system and, in particular, the coverage issues which in many ways have proven to be the Achilles heel of Chilean private pension system.