Reducing poverty in Chile : cash transfers and better jobs

Notwithstanding impressive progress, poverty and inequality remain high in Chile in OECD comparison, and the tax-benefit system does little to improve on this. The government plans to introduce a new cash transfer for the poor, the Ingreso Ético Familiar. This is a welcome initiative. However, the transfer will be modest by OECD standards, at least initially, and it will be quite narrowly targeted at families living in extreme poverty. Over time, the government should consider increasing the size of this transfer and opening it to a wider range of beneficiaries through gradual benefit withdrawal. Strong support for the poor to find jobs of decent quality will be key to help them overcome poverty in a sustainable way. Ingreso Ético Familiar will come with an employment programme for beneficiaries. This should build on the existing infrastructure of active labour market policies, which will need to improve at the same time. The government should strengthen the capacity of local labour offices and use the current evaluation of training programmes to retain only those of proven effectiveness, while focusing them more on low-skilled workers and the unemployed. Strengthening unemployment benefits, while limiting severance pay, would make employment protection more effective and do more to avoid labour market duality. This Working Paper relates to the 2012 OECD Economic Survey of Chile (www.oecd.org/eco/surveys/chile).