A study by MIPP Millennium Institute researcher Pablo Muñoz analyzes the effects of a reform that extended labor protection to subcontracted workers in Chile, revealing significant impacts on income, employment, and labor allocation in affected companies.
In recent decades, employment through temporary employment agencies has gained prominence around the world, offering companies a way to flexibly manage their workforce. This type of employment is characterized by a triangular contractual relationship between the worker, the agency, and the user plant.
Temporary employment through agencies allows companies to respond quickly to changes in demand without the long-term commitments associated with permanent employees.
However, this flexibility often translates into precarious working conditions for agency workers, who generally have less job security and social benefits compared to permanent workers.
Globally, there has been an increase in the adoption of regulations aimed at protecting temporary and agency workers and equating their working conditions with those of permanent workers. These policies seek to mitigate the disadvantages of alternative forms of employment and ensure that all workers receive fair and equitable treatment, regardless of the nature of their contract.
In 2007, Chile implemented a significant reform to its labour legislation, aimed at improving the conditions of agency workers. Prior to this reform, subcontracted workers in Chile did not have access to many of the benefits and protections available to permanent workers, resulting in a marked disparity in labour treatment.
The 2007 reform in Chile (Law 20.123, known as the Subcontracting Law), obliged user companies to ensure that agency workers had working conditions equivalent to those of permanent employees. This includes job security measures and payment of social benefits. As a result of the law, user companies also acquired subsidiary liability in the event of non-compliance by employment agencies.
The aim of the reform was to level the playing field and ensure that agency workers were treated fairly. However, this legislation also posed significant challenges for companies, which had to adapt to new obligations and face the additional costs associated with complying with the law.
Despite its relevance, evidence on the impact of extending employment protection to agency workers is limited. In this context, the study “The Impact of Extending Employment Protection to Agency Workers on Firms” conducted by MIPP Milenio Institute researcher Pablo Muñoz and Alejandro Micco focuses on evaluating the consequences of the aforementioned labor reform in the Chilean manufacturing sector.
The authors analyze how extending labor protection to subcontracted workers affected various economic aspects of manufacturing plants, with special attention to income, employment, and efficiency in labor allocation.
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MIPP Chile 2024