Productivity in Chile remains stagnant: its impact on growth for 2024 is estimated between -0.2% and 0.1%

Productivity in Chile remains stagnant: its impact on growth for 2024 is estimated between -0.2% and 0.1%

2024 Annual Productivity Report by CNEP

  • This figure aligns with a 16-year trend: productivity does not significantly contribute to the country’s economic growth (GDP—Gross Domestic Product). Estimates show for 2024 that productivity will fluctuate between -0.2% and 0.1% for the aggregate economy including all sectors and the non-mining economy.
  • While total employment grew by 0.8% (driven by a 2.9% increase in workers and a 1.6% decrease in average hours worked), accumulated capital increased by 1.4% to 1.6% in 2024.
  • When analyzing the factors driving economic growth—labor, capital, and Total Factor Productivity (TFP)—the CNEP notes that while labor and capital registered combined growth of 2.4% (CNEP adjustment) and 2.2% (DIPRES adjustment), TFP, which measures efficiency in resource usage, showed almost no variation, fluctuating between -0.2% and 0.1%. This highlights that productivity’s contribution to economic growth will be nearly nonexistent in 2024, reflecting a structural challenge limiting the country’s sustainable economic development.
  • CNEP President Raphael Bergoeing remarked, “The economy is failing to generate more value through optimized resource use, which restricts its ability to sustain robust, competitive, and sustainable economic development over time.”
  • Executive Secretary Rodrigo Krell highlighted the key reasons for slow productivity growth in recent years:
  • The global slowdown in productivity growth.
  • Inefficiencies in resource allocation within the economy.
  • Labor market rigidities.
  • State inefficiencies in granting investment permits.
  • Delays in education and skills development systems.
  • Low levels of innovation, research, and development.
  • The productive effects of artificial intelligence (AI) are not yet evident.
  • For the second year, the CNEP analyzed labor productivity. According to Krell, although labor productivity grew by 1.0% in 2024 compared to 2023, this was primarily due to increased capital per worker. However, the impact of other factors, such as human capital and overall efficiency (measured by TFP), was minimal.
  • The annual report also included an update on implementing 512 public policy recommendations proposed by the CNEP. The analysis revealed that 42% had achieved some level of compliance, while 58% remained unimplemented, reflecting progress and challenges in evidence-based policy implementation.
  • To provide deeper insights into productivity trends, the CNEP launched a “Productivity Evolution in Chile” dashboard on its website (www.cnep.cl). This tool offers a detailed exploration of TFP performance from 1990 to now.
  • The 2024 Annual Productivity Report also features an exploratory study by economist Estefano Rubio, “Bargaining Power and Efficiency: Evidence from Collective Bargaining. “ The study examines the impact of Chile’s 2017 labor reform on wages, employment, and business profitability.

Tuesday, January 14, 2024

The National Commission for Evaluation and Productivity (CNEP) estimates Total Factor Productivity (TFP) for 2024 will vary between -0.2% and 0.1% for the aggregate and non-mining economies.

CNEP President Raphael Bergoeing and Executive Secretary Rodrigo Krell reported this during a press briefing.

Although the projected range for 2024 (-0.2% to 0.1%) indicates a halt to successive productivity declines observed in previous years (-1.1% and -1.0% in 2023; -4.6% and -4.5% in 2022), it cannot be interpreted as a structural recovery or trend reversal.

The exceptional increases observed in 2020 and 2021, driven by the economy’s reopening and post-pandemic fiscal and monetary stimuli, were transitory events that failed to reverse underlying stagnation. TFP continues to show limited performance for other years, leaving the country’s economic growth dependent on cumulative factors like labor and capital.

Structural Challenges to Growth

CNEP President Raphael Bergoeing emphasized that productivity is the most critical variable determining a country’s growth because it improves resource-use efficiency and has unlimited potential. However, he noted that Chile faces a structural challenge: “The economy is not generating more value by optimizing existing resources, which limits its ability to sustain robust, competitive, and sustainable economic development over time.”

Bergoeing also stated, “Adjustments in human capital quality and capital utilization showed practically no variation compared to the previous year. Thus, capital and labor remain the main contributors to economic growth, minimizing productivity’s role in 2024’s growth.”

Understanding Total Factor Productivity (TFP)

TFP measures how efficiently an economy uses and combines resources, such as labor and capital, to generate value. It helps determine how much GDP growth comes from efficiency improvements rather than increased resource usage.

In the 1990s, productivity improvements exceeded 3% annually, contributing significantly to economic growth. Between 1991 and 1995, GDP grew by an average of 7.6% annually, with productivity contributing approximately 40% of that growth. However, over the past two decades, Chile has experienced stagnation in productivity.

Key Trends from the 2000s

  • In the early 2000s, capital accumulation gradually replaced productivity as the main driver of growth. Between 2001 and 2005, TFP grew at an average annual rate of 1.3%, but between 2006 and 2010, it declined by an average of 0.2% annually. During this period, capital contributed an average of 2.7% annually to GDP growth, becoming the predominant growth factor.
  • This pattern persists in 2024. TFP remains 1.5% below its pre-pandemic level, reflecting decreased efficiency in resource usage. While the workforce grew by 4.5% and net capital stock increased by 15.7% compared to 2019, real GDP grew by only 9% during the same period. This indicates that despite having more resources, these are not used efficiently to generate proportional growth.

Bergoeing remarked, “At this rate, without efficiency improvements, Chile’s economy would take 30 years to double its income. However, with a 1% annual productivity increase, this timeline could be shortened by nearly a decade, demonstrating productivity’s fundamental role in accelerating growth and economic well-being.”

Non-Mining Economy Outlook

Similar trends are observed in the non-mining economy. Compared to the previous year, production increased by approximately 2%, driven solely by increased capital and labor, with non-mining productivity varying between -0.2% and 0.1%.

Bergoeing highlighted, “Chile’s reliance on increasing resources, such as a larger workforce or new infrastructure investments, rather than TFP improvements, represents a structural limit to long-term development potential. Growth driven by TFP is more sustainable over time and allows for maximizing the use of available resources. Redirecting efforts to improve TFP will optimize resource usage, strengthen global competitiveness, and ensure greater sustainable economic well-being.”

Challenges to Policy Implementation

The 2024 CNEP report also provided an update on the implementation status of 512 public policy recommendations aimed at improving productivity. According to Rodrigo Krell, 42% of these recommendations have been partially or fully implemented, while 58% remain pending. Krell emphasized, “While there is progress, significant efforts are required to address unresolved issues, particularly in sectors like healthcare and construction.”

Among the most advanced studies, the productivity report highlights significant progress in the construction sector and skill development initiatives, with nearly half of the recommendations seeing partial implementation. In contrast, regulatory improvements in health and technology adoption lagged behind expectations.

Krell added, “Continuous monitoring of these recommendations is essential for validating their impact and ensuring evidence-based policy frameworks.”

Productivity and Labor Reform: Insights from the 2017 Labor Reform

An exploratory study titled “Bargaining Power and Efficiency: Evidence from Collective Bargaining” included in this year’s report, examines the impacts of the 2017 labor reform on business efficiency and wages. Led by economist Estefano Rubio, the analysis reviewed data from over 3,000 Chilean companies. The reform improved workers’ wages without significantly affecting business profitability, reducing operational costs and labor conflicts by nearly 18%.

Rubio’s study revealed that stronger union bargaining power led to wage increases without negatively impacting productivity, suggesting improved employer-employee relations and more efficient resource use. However, union membership rates did not increase substantially post-reform, as improved formal powers reduced the need for new memberships.

CNEP Report

Since its creation, the National Commission for Evaluation and Productivity (CNEP) has focused extensively on evaluating and designing public policies to improve productivity and well-being in Chile. As of December 2024, the commission has produced 19 completed reports and 13 exploratory studies and is working on 7 studies scheduled for delivery in 2025. Additionally, the commission annually prepares productivity and evaluation reports, complemented by organizing seminars, workshops, and events to foster dialogue among academic researchers, policymakers, and various societal actors.

Completed and Ongoing Studies

Efficiency in the Management of Hospital Procurement and Inventories

One of the studies presented by the CNEP in 2024 analyzed the management of hospital procurement and inventories, focusing on pharmaceuticals and medical devices. The report highlighted that spending on these supplies grew by 23% between 2018 and 2023, reaching approximately 1.4 trillion pesos, equivalent to 25% of the central government’s spending on goods and services. This growth surpasses other key variables, such as the 15% increase in FONASA beneficiaries and population aging.

The study identified significant inefficiencies in managing these supplies and emphasized the need to optimize processes to ensure quality, timeliness, and efficiency. Among the 30 proposed recommendations are improvements in traceability, inter-institutional coordination, and regulatory changes. If implemented, these measures could save resources equivalent to financing the construction of four hospitals like Sótero del Río annually.

Primary Health Care (PHC): Towards Greater Efficiency

In the PHC domain, the CNEP updated 14 of the 36 recommendations in 2022 to strengthen the system’s coverage and quality. Priority measures include expanding TeleHealth and implementing Digital Clinical Home services, which improve access to care and interoperability of clinical data. Additionally, the CNEP proposed evaluating the Public-Private Partnership (PPP) model as a solution to address the healthcare infrastructure gap, estimated at USD 1 billion.

Baseline for Mining Investment Projects

The report provides insights into the total processing time required for mining sector investment projects to gain approval (baseline). It identifies 11 representative categories within the industry. The analysis includes the critical path for each project and a work plan to monitor progress toward reducing approval timelines by one-third, as agreed under the new law.

Other Completed Reports

  • Territorial Planning: Proposals to improve the evaluation and coordination of municipal regulatory plans focusing on clear goals and sustainable development.
  • 2024 Annual Evaluation: Analysis of public policies, programs, and regulations, emphasizing improved public spending efficiency.
  • Efficiency in PHC Management: Diagnosis of the implementation progress of previous recommendations, with an estimated 36% advancement.

Strategic Ongoing Studies

The CNEP is advancing seven studies addressing critical challenges for the country, aiming to provide effective solutions in various key areas, including:

Artificial Intelligence (AI) and its Impact on Productivity and the Labor Market in Chile

This study aims to analyze the effects of AI on productivity and the labor market in Chile, focusing on how AI transforms industries, displaces jobs through automation, creates new opportunities, and alters market structures. The study will also explore technological, regulatory, and organizational barriers hindering adoption, such as unequal internet access, data availability, and privacy protection.

This analysis identifies areas where AI can improve efficiency, and public policy recommendations will be proposed to promote inclusive and sustainable technological growth.

Environmental Regulatory Burden on Operational Phase Mining Projects

This study seeks to optimize existing regulations to balance compliance and sustainability without compromising the competitiveness of this essential industry for Chile’s economy.

Socio-Environmental Conflicts Affecting Large Investment Projects

By evaluating the current regulatory framework, this study proposes improvements to manage these conflicts more efficiently while respecting community rights and promoting sustainable development. The study includes reviewing international experiences and analyzing mechanisms proven effective in similar contexts.

Reducing Food Waste Through Fiscal Incentives

In collaboration with the FAO, the CNEP is reviewing Law No. 21,210 to evaluate fiscal incentives to reduce food waste in Chile. This study seeks to promote sustainable practices in the food supply chain, enhance production and distribution efficiency, and address a globally significant issue.

Evaluation of Public Policies

The “Medium-Term Evaluation Agenda” document will systematize Chile’s tools to evaluate public policies, including diagnostics and recommendations to strengthen and promote evaluation efforts.

Commitment to Productivity and Sustainability

These studies reflect the CNEP’s commitment to addressing complex issues holistically, generating concrete proposals to strengthen productivity, promote sustainability, and contribute to the population’s well-being.

International and National Engagement

The CNEP continues to strengthen its strategic role through participation in various commissions and international forums.

  • Internationally: Rodrigo Krell, CNEP’s Executive Secretary and one of the three co-chairs of the OECD Global Forum on Productivity (GFP) participated in the OECD’s annual meeting in Paris in October 2024, presenting Chile’s progress in productivity-oriented policies and highlighting critical areas needing attention to maintain competitiveness.
  • Nationally: The CNEP actively collaborates with the State Modernization Advisory Commission, contributing to an agenda focused on transforming the relationship between the state and its citizens. Additionally, Krell is a member of ICARE’s Innovation Circle for the 2024-2025 term and participates in initiatives such as the Contractual Relationship Modernization Committee for Construction and the Interministerial Committee for the Evaluation Plan.