The Chilean economy has had an extraordinary performance over the last decades with strong growth and declining poverty rates. However, the economy is now slowing at a time when inequality remains very high, making future social progress challenging. This chapter discusses how to achieve greater social inclusiveness against the background of weaker medium-term growth. First, it argues that Chile needs to increase income redistribution through its tax and transfer system towards levels prevailing in other OECD countries. Although existing social transfers are effective in combatting poverty, their size remains small and many households at the bottom of the ladder are not reached by them. Second, the chapter argues that labour earnings should be less disparate, as they explain around 70% of income inequality. This should be done by updating labour legislation, but also by empowering low-skill workers and enabling them to increase their productivity, through the acquisition of adequate skills. Finally, focus should be placed on closing wide gender gaps.

Improving education and skills is the linchpin to reduce income inequality and boost productivity growth. This chapter argues that to improve, and make better use of, the skills of the labour force, Chile could gain a lot from a comprehensive and consistent Skills Strategy along three pillars: developing, activating and using skills effectively. Chile has made tremendous progress over the last decades attracting more students to the education system. Yet, educational outcomes remain below OECD standards, and are strongly linked to students’ socio-economic status. Improving the quality and equity of education would help achieve stronger productivity growth and make Chile a more inclusive country. Therefore, Chile should set the goal of attaining universal skills by 2030. Reaching this goal requires investing more in early childhood education, making schools more inclusive and reshaping teacher careers. Chile also needs to improve access to quality tertiary education for students from medium and low socio-economic backgrounds. Finally, in terms of activating and using skills effectively, a key goal should be to reduce skill mismatch, which contributes to low productivity growth. This requires more flexible labour markets, investing more in vocational education and training, and promoting the participation of more women in the fields of engineering and computer science.