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Same-Day Analysis

Chile's labour reform to reduce strike frequency from 2016 but industrial unrest likely until the bill passes

Published: 13 March 2015

The bill, currently under discussion in Congress, seeks to reduce labour disputes and the likelihood of strike action. Business associations and unions have presented objections, but a consensus law is likely.



IHS perspective

 

Significance

Chile's labour reform will ultimately increase the power of unions by extending collective bargaining rights and incentivising union membership.

Implications

The resultant increases in salary costs are likely to be offset by the introduction of new sanctions for certain types of industrial action, which is likely to deter worker unrest.

Outlook

Unions opposed to the reform are likely to continue demonstrations against the measures until it is passed by Congress. Only minor adjustments to the draft bill are anticipated, which is likely to be approved in the second half of this year.

The Chilean Congress began hearings on 2 March on a labour reform introduced by President Michelle Bachelet in December 2014. The bill, one of her key policy priorities, increases the power of the unions, as companies will be obliged to engage with just one union (the "most representative") during any negotiations. It also forbids the replacement of striking workers, except to ensure continuity of "basic services" (those that cannot be disrupted because they risk damaging infrastructure, the environment, or health, which are set to be discussed on a case-by-case basis between each company and its employees).

To make the measure more palatable to business groups, the legislation also provides for an increase in the maximum number of working hours, and establishes sanctions for unions that engage in industrial action without first exhausting dialogue mechanisms, or that use "militant action", such as obstructing site access during strikes.

The bill seeks to bring Chilean legislation in line with international labour laws and to overhaul negotiating mechanisms, as the current legislative framework – which dates back to the authoritarian Pinochet government (1973–90) – places strict limits on collective bargaining rights and on union activities. This has served to inhibit dialogue and contribute to labour disputes (for example, 172 dispute incidents were recorded in the second half of 2014). In December 2013–January 2014, a labour dispute in northern ports expanded to 12 ports (including copper-exporting ports Angamos-Mejillones and Antofagasta, and fruit-exporting port San Antonio) in a three-week strike that cost state-owned mining company Codelco USD130 million and fruit exporters USD50 million.

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The United Workers' Trade Federation (Central Unitaria de Trabajadores: CUT) marches
through Santiago to demand labour reform in September 2014.
PA20820999

Opposition by businesses and unions

Business associations and unions have voiced objections to the bill. Unions, although initially supportive of the reform, have grown increasingly hostile because of the potential introduction of sanctions, such as the revocation of union licences. Chile's main union movement, the United Workers' Trade Federation (Central Unitaria de Trabajadores: CUT), argues that this effectively amounts to the criminalisation of strikes. Other groups, such as the newly formed Comité de Iniciativa por la Unidad Sindical, a group of 30,000 workers mainly from small- and medium-sized enterprises (SMEs), argue that non-unionised workers from smaller firms will see their labour rights undermined and will find it more difficult to negotiate better pay and working conditions.

Business groups such as the Confederation for Production and Commerce (Confederación de la Producción y del Comercio: CPC) argue that stronger unions are likely to increase salary costs. While larger firms can afford pay rises, less affluent smaller firms will be more vulnerable to increased labour militancy. Coupled with the prohibition on hiring replacement workers during strikes, the CPC argues that the law would affect both the production and profits of firms operating in Chile, which could deter investment in some companies.

Protests likely

Workers are likely to mount demonstrations to put pressure on the government over demands such as allowing wider negotiations by workers of the same sector and to oppose the proposed sanctions. The risk of workers' protests will increase if approval of the bill is delayed to next year or if it is considerably watered down. Protests called by the CUT to demand a swift passage of the reform in 2013 and 2014 gathered between 10,000 and 25,000 demonstrators in Santiago city centre, according to police figures. These were largely peaceful, but there were incidents reported of hooded demonstrators throwing stones and Molotov cocktails at private property, breaking retail store windows, and looting shops and bank branches, with the police responding with tear gas and water cannon.

Workers from the ports and mining sectors are considering further strike action, including at the ports of San Antonio and Antofagasta, with sectors of the Ports Union and the Confederation of Copper Workers (Confederación de Trabajadores del Cobre: CTC) criticising aspects the reform. In the past, meanwhile, Codelco subcontractors have protested to demand swift approval of the reform. Workers in the forestry and fisheries industries are also likely to get involved. However, the fact that CUT leaders are linked to the Communist Party, which is now part of the ruling New Majority (Nueva Mayoría) coalition, is likely to reduce the intensity of any protests.

Outlook and implications

While trying to meet its commitments towards workers, the government is also reluctant to antagonise business groups, particularly after it faced heavy criticism following a tax reform in 2014 that increased corporation tax rates, and will try to reconcile demands from both sides. Minister of Labour Javiera Blanco has already ruled out more radical proposals from both sides, such as a proposal from the Federation of Chilean Industry (Sociedad de Fomento Fabril: Sofofa) to eliminate compensation for years of service, or the CUT's demand to allow negotiations per sector.

The labour reform is likely to be approved with only minor amendments to its current form, as the New Majority coalition has the required majority in Congress. IHS sources in Chile have confirmed that although Bachelet aims to pass the bill before her state-of-the-nation address on 21 May, it is likely to lose priority to the education reform. Approval in the second half of the year is more likely, with implementation in 2016. Unions are then likely to find themselves better placed to demand improvements to pay and conditions from some firms. Although this may increase costs for companies operating in Chile over the one-year outlook, it is likely to be partially compensated from 2016 by the reduced frequency of industrial action and resultant production stoppages.

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