NCPA - National Center for Policy Analysis

Chile Set to Privatize Unemployment Insurance

June 24, 2002

Two decades after Chile launched what turned out to be the amazingly successful privatization of its social security system, its current Socialist government plans to allow the private sector to manage the nation's unemployment insurance system.

  • Instead of turning to the government for benefits, unemployed workers will draw on individual accounts that have been invested in a mixture of stocks and bonds.
  • Under the new system, scheduled to go into effect Oct. 1, 2002, workers will pay 0.6 percent of their wages into an account administered by a private fund -- with employers contributing 2.4 percent.
  • The government's only involvement will be to make an annual payment of about $12 million to a fund for workers whose own contributions are not enough to guarantee them minimum benefits.
  • All unemployed workers will be allowed to collect the equivalent of 40 percent their wages for up to five months any time they find themselves without a job -- whether they have been laid off or fired or have quit.

At retirement, workers can collect payoffs from their accounts -- the amount depending on how much they have withdrawn from their account throughout their working lives.

Source: Larry Rohter, "Chile Will Privatize a New Span of its Noted Social Safety Net," New York Times, June 24, 2002.

 

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