• Two years of sluggish growth catching up with labor market
  • Jobless rate rose to 9.4% in March, Chile University estimates

Elson Carrasco has called every one of his friends and colleagues in the construction industry over the past month as he looks for work. After 30 years on building sites, that is a lot of people -- yet not one has been able to help.

“Things are bad,” Carrasco said as he collected his first ever unemployment payment in central Santiago on April 3. “Companies don’t have jobs. They are working on existing projects, but there aren’t any new ones coming in.”

The jobless rate in the Santiago Metropolitan Region leaped 2.6 percentage points to a six-year high of 9.4 percent in March from three months earlier, according to a survey by the Universidad de Chile. As the labor market turns down, real wages are growing at the slowest pace since 2009.

The jump in unemployment is bad news for a government that ratcheted up spending last year, hired more workers and increased infrastructure investment 12 percent to ease the impact of slower growth. With the Finance Ministry already cutting back its spending plans for this year as the budget deficit widens, the last thing President Michelle Bachelet wants to see is consumer spending going the same way as investment -- downwards.

Further pressure on economic growth seems inevitable though as unemployment rises. Carrasco has already stopped taking his wife and two daughters out to dinner on Fridays and is preparing to cut back further.

“The biggest expense is the mortgage, so we are adjusting our budget in other things like groceries,” he said.

‘Feedback Loop’

Consumer spending had helped the economy maintain growth of about 2 percent for the past two years, even as a decade-long commodity boom came to an abrupt end and investment fell. That growth pillar may already be weakening, with retail sales growing at the slowest pace in a year in March.

“These things create the risk of a feedback loop,” said Tiago Severo, an analyst at Goldman Sachs Group Inc. in New York. “The labor market had been weakening for months, but we weren’t seeing that weakness translated into a higher headline unemployment figure. This is happening now.”

The national statistic agency’s calculation of national unemployment rose more than analysts expected to 6.3 percent in the first quarter from 5.9 percent in the month-earlier period, and up from 6.1 percent a year before. The median estimate of 15 economists surveyed by Bloomberg was 6 percent.

As unemployment rises, the government stands ready to step in, Finance Minister Rodrigo Valdes said last week.

“We have a system to activate emergency programs for jobs depending on the unemployment level,” he said. “Unemployment reflects lower growth, so we need to work on the main issue, which is growth.”

Construction Standstill

The construction industry is likely to be particularly hard hit this year. In 2015, the industry boomed as builders rushed to start projects before a new tax came into effect at the beginning of this year. As apartment blocks shot up across the country, employment in the industry leaped by 44,380 last year, or 6.7 percent.

That boom has now ended, with the survey by Universidad de Chile estimating the jobless rate in the Santiago Metropolitan Region among construction workers at 9.9 percent in March, higher than any other industry.

Outside the unemployment office, Carrasco explains that he used to make about $1,800 a month as a site manager, although his contract only shows monthly payments of $380, the minimum wage. The rest was paid in cash.

“Companies practically force you to accept these conditions, and now my unemployment benefit is really low,” he said.

Going Downmarket

The situation is not yet dire. Like Carrasco, many unemployed people interviewed by Bloomberg as they lined up to collect their benefit payments expected to find work, but not with the pay or conditions they wanted.

The statistics agency reported that self-employed jobs, linked to unqualified or informal work, grew 7.3 percent in the first quarter from a year ago. Salaried jobs were only up 0.1 percent.

Alina Correa, who lost her job earlier this year as a secretary at a company that imports cloths because of a downturn in business, is beginning to lower her expectations. “There is work, yes, but it is not well-paid at all,” she said.

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