Chile: Proposal seeks to reform severance pay and work week calculations

A Chilean labor reactivation committee has put forward proposals that could reshape the country's labor market, including significant adjustments to severance pay and the calculation of the 40-hour work week. The committee suggests extending the reference period for calculating the ordinary workday from the current four weeks to 15 weeks, aligning with the OECD average, or potentially up to 52 weeks.

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We are talking about a situation that is not job precarity, but rather making this mechanism more effective.

Alejandro Micco, a former Undersecretary of Finance and a member of the committee, defended the proposal on "El Primer Café," stating it aims to make the mechanism more effective rather than leading to job precarity. He highlighted that the current severance pay system, based on years of service with a cap at 11 years, discourages workers from changing jobs. "If I already have 10 years in a company, I will never change because if I change, I lose what I have accumulated as a right to severance pay," Micco explained.

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Therefore, one begins to have a bad balance. What is being proposed is to move to a situation where the payment made is all-event.

To address this, Micco proposed moving towards an "all-event" severance payment model, similar to the system used for domestic workers in Chile. He acknowledged that if payments are made "all-event," they would likely need to be smaller amounts than the current system, as they would be paid out more frequently. He suggested a gradual implementation of this new system.

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I think we have to look at it, it is proposed that we have to move gradually in that direction, but I do think it is a topic that we have to discuss.

Former Undersecretary Alejandro Weber, from a different administration, supported the proposals, noting that high labor costs for hiring and firing contribute to Chile's unemployment levels. However, he suggested separating the discussion on labor costs from reforms like the pension system and the 40-hour work week law, which he deemed necessary but also contributing to increased business costs.

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Today, hiring and firing is very expensive, and that has generated the levels of unemployment we have in our country. Labor costs have indeed risen far above our economy's capacity to absorb them.