“It is urgent that Chile strengthens its regulatory framework to improve economic performance and productivity and promote formal employment.”

Representing Chile at the “17th Conference on Good Regulatory Practices” (GRP17) of APEC, Rodrigo Krell, executive secretary of the National Commission for Evaluation and Productivity (CNEP), emphasized that “the available evidence suggests that regulatory quality plays a crucial role in economic growth, productivity, and formal employment.”

He emphasized, “Chile has seen a significant decline in the quality of its regulations. While in 1996 the country was at the 94.02 percentile, in 2022, it reached 78.57. These data show warning signs regarding our regulations, which face significantly more complex challenges than those faced 30 years ago.”

Friday, August 23, 2024, As a representative of Chile at the 17th APEC Good Regulatory Practices Conference (GRP17) held this week in Peru, Rodrigo Krell addressed the challenges facing Chile regarding regulatory quality, growth, productivity, and labor formality. He examined the role of regulatory quality in productivity, competition, and the economy and the links and effects of regulation on the economic performance of companies and labor informality.

Krell stated, “Chile has seen a significant decline in the quality of its regulations. In 1996, the country was in the 94.02 percentile, but in 2022, it reached 78.57 (World Governance Index). These data show warning signs regarding our regulations, which face significantly more complex challenges than those we faced 30 years ago.” Furthermore, he highlighted the deceleration trend that Total Factor Productivity (TFP) in Chile has experienced since the last decade (2011-2023) with an average rate of -0.273%. Comparing this figure with the growth rates of over 3% recorded at the beginning of the 90s, the last 15 years, (2008-2023) could be considered “lost” in terms of productivity growth. He asserted that this situation highlights the need to implement measures to boost productivity (regulatory changes, education, technology, widespread teleworking), warning that this decrease in productivity “is concerning because it limits the capacity of the Chilean economy to grow and generate formal employment.”

He showed the negative correlation between the growth trend that shows the level of economic development (measured by GDP per capita) and labor informality: as GDP per capita increases, the percentage of labor informality tends to decrease, and vice versa (when GDP per capita decreases, labor informality increases). This suggests that more advanced economies, with more effective regulations, tend to have lower levels of informality, he emphasized. He also expressed concern that TFP in Chile has stopped contributing to GDP growth. While between 1991 and 2000, it was over 1/3 of the average annual growth, since 2006 onwards, its influence has been practically null or negative”.

This scenario “shows the urgency for Chile to strengthen its regulatory framework, improve economic performance and productivity, and promote formal employment.”

On the other hand, he explained that the rate of labor informality in Chile, which fluctuates persistently between 27% and 30% (2017 and 2024), is higher in women (30.3% and 31.6%) than in men, (30.3% and 31.6%).

While countries like Chad and India, with low GDP per capita, show increasing trends of informality, nations like Singapore and the United States, with higher GDP per capita, exhibit the opposite situation.

He also warned that in developing economies, where informality is more prevalent and the quality of regulations is more critical, “improving their quality is a key strategy to enhance formality, promote more equitable, sustainable economic development, and address gender disparities, as in the case of the Chilean labor market,” he asserted.

He highlighted that “progress has been made in reviewing sectorial reforms to improve investment, growth, and productivity in Chile. For example, the CNEP has analyzed the investment permit system. The CNEP’s diagnosis, which identified the system as unstable, inefficient, and legally uncertain, and on which there is cross-sectional consensus, is present in the legislative discussion,” he concluded.