In November 2008 a Mercurio headline proclaimed: “Record number of strikes under this government.” We can allege that the right-wing newspaper is engaging in manipulative fear-mongering, but the numbers do warrant attention. During the Bachelet administration Chile experienced twenty-seven strikes in less than three years, which constitutes a multiple of the total strikes under all previous Concertación governments put together. This paper will attempt to explain why labor issues have gained a much higher profile under the Bachelet administration than its policy makers had originally anticipated. It first presents some empirical evidence that summarizes key problems of the Chilean labor market before going on to discuss how employment issues moved up the political agenda of priorities as the political consensus surrounding labor policy was shaken up by the increased number of protests. Finally, it reviews the government’s attempt to establish a new policy consensus on labor issues through a dedicated commission and reviews its recommendations in the context of Chile’s development process.

This paper applies the capability approach to the case of the Chilean labor market. It highlights the fact that the only information related to the labor market which the development literature usually considers is the unemployment rate, and sometimes wage levels. Applying the capability approach to the labor market, however, obliges us to take a broader view of the functionings that work can provide. Although having a job and thus earning an income is clearly the most important factor for the individual, other issues related to the characteristics of this job should also be taken into account as they are equally capable of generating capabilities and functionings for the individual, especially if one takes a longer term view.

The paper presents a methodology for measuring the quality of employment, a concept which so far has lacked definition and application in the literature. It takes the view that the usual consideration of the labor markets by means of the unemployment statistics is as simplistic an analysis as looking at the level of a country’s development by only considering its GNP per capita ratio. Inspired by the UNDP’s work on the Human Development Index, the paper therefore proposes a methodology for creating a composite index of various labor market indicators, which together will provide a more broadly based view of the labor market, and provide a better account of the capabilities and functionings that employment generates. It demonstrates the uses of such an indicator for the purposes of public policy making by showing its application to the Chilean labor market, in particular by highlighted specific cases where the indicator would highlight problem issues which are not currently being addressed by public policy.

In 2002 the Chilean government implemented new legislation for an unemployment insurance scheme which has been presented both at a national and international level as a model for other developing countries, because it provides protection against unemployment, avoids issues of moral hazard associated with traditional unemployment insurance systems, and has a relatively low public finance requirement. The scheme, which is financed principally through individual savings accounts, but also institutes a government financed contingency fund for workers with insufficient savings, has been described by the ILO as “new legislation that could lead to a new generation of reforms in unemployment insurance matters.” But before this scheme is copied by other developing countries, and perhaps also by developed ones, we should ask whether it really does provide adequate insurance for the unemployed. Initial research conducted on the Chilean case suggests that good quality jobs in the formal sector will be well covered by this insurance scheme, whereas precarious and low income jobs will hardly be covered at all. Since workers with low quality jobs face a far higher probability of becoming unemployed, this means that the vast majority of the unemployed will not benefit from this insurance system. This paper is the first published account of how this unemployment insurance will work in practice.

This paper argues that the strengths of Chile’s model transition have turned into the weaknesses of its post-transition democracy. These weaknesses have become particularly apparent during the Bachelet administration. While the Bachelet government has undoubtedly suffered from leadership issues and poor judgement, we argue that an excessive focus on these issues has obscured some of the, perhaps more important, root causes of the difficulties of the Bachelet government. We argue that the governing coalition continues to rely on a model of elite politics developed during the democratic transition, which while initially successful, is counterproductive during the current period of democratic consolidation. This means that the very strengths of Chile’s transition have now turned into the weaknesses of the country’s post-transition status quo. Furthermore, the concomitant development of a normalized pattern of democratic politics among the Chilean public without significant change in elite politics has created a lack of congruence at the elite and popular levels, as well as within the elite, which explain some of the deeper reasons why the Bachelet government has experienced so many difficulties.