Sustaining Employment And Wage Gains In Brazil

Continued social and economic progress in Brazil will depend on high employment, sustained labor productivity and income growth, and opportunities for the poor and disadvantaged to upgrade their own productivity and convert it into sustainable incomes.

We document the short-term impact of the COVID-19 pandemic on the Brazilian labor market focusing on employment, wages and hours worked using the nationally representative household surveys PNAD-Continua and PNAD COVID. Sectors most susceptible to the shock because they are more contact-intensive and less teleworkable, such as construction, domestic services and hospitality, suffered large job losses and reductions in hours. Given low income workers experienced the largest decline in earnings, extreme poverty and the Gini coefficient based on labor income increased by around 9.2 and 5 percentage points, respectively, due to the immediate shock. The government’s broad based, temporary Emergency Aid transfer program more than offset the labor income losses for the bottom four deciles, however, such that poverty relative to the pre-COVID baseline fell. At a cost of around 4 percent of GDP in 2020 such support is not fiscally sustainable beyond the short-term and ended in late 2020. The challenge will be to avoid a sharp increase in poverty and inequality if the labor market does not pick up sufficiently fast in 2021.

Brazil’s public-sector wage bill is comparatively high. It grows inertially and competes with other spending. Rightsizing the wage bill could stimulate administrative efficiency and bring more equity into a system where public employees earn more than private in comparable professions. Most importantly, however, a reform is necessary to comply with the Federal government expenditure ceiling and the subnational fiscal responsibility rules. A reform should thus encompass all government levels, and all careers, and should aim to achieve a real decrease in salaries and lower employment. In the medium term, a review of the compensation structure should rationalize the multitude if wage grids, merge allowances into the base wage, and align public sector compensation to private wages in low-skilled professions.

Even though institutions are created to protect workers, they may interfere with labor market functioning, raise unemployment, and end up being circumvented by informal contracts. This paper uses Brazilian microeconomic data to show that the institutional changes introduced by the 1988 Constitution lowered the sensitivity of real wages to changes in labor market slack and could have contributed to the ensuing higher rates of unemployment in the country. Moreover, the paper shows that states that faced higher increases in informality (i.e., illegal work contracts) following the introduction of the new Constitution tended to have smaller drops in wage responsiveness to macroeconomic conditions, thus suggesting that informality serves as a escape valve to an over-regulated environment.

Using nationally representative, economywide data, this paper investigates the relative importance of trade-mandated effects on industry wage premia; industry and economywide skill premia; and employment flows in accounting for changes in the wage distribution in Brazil during the 1988-95 trade liberalization. Unlike in other Latin American countries, trade liberalization appears to have made a significant contribution toward a reduction in wage inequality. These effects have not occurred through changes in industry-specific (wage or skill) premia. Instead, they appear to have been channeled through substantial employment flows across sectors and formality categories. Changes in the economywide skill premium are also important.

A comprehensive text that presents an economic study of Brazil from a regional, labour and developmental viewpoint. Regional wage differentials are examined.

This paper assesses the impact that a potential liberalization of sugar regimes in OECD countries could have on household labor income and poverty in Brazil. The authors first estimate the extent of price transmission from world markets to 11 Brazilian states to capture the fact that some local markets may be relatively more isolated from changes in world prices. They then simultaneously estimate the impact that changes in domestic sugar prices have on regional wages and employment depending on worker characteristics. Finally, they measure the impact on household income of a 10 percent increase in world sugar prices. Results suggest that workers in the sugar sector and in sugar-producing regions have better employment opportunities and experience larger wage increases. More interestingly, households at the top of the income distribution experience larger income gains due to higher wages, whereas households at the bottom of the distribution experience larger income gains due to movements out of unemployment.

Skills and Jobs in Brazil: An Agenda for Youth is a new report focusing on the challenge of economic engagement among the Brazilian youth. In the context of a fast aging population, Brazil’s greatest economic opportunity is to increase its labor productivity, especially that of youth. This report documents important new facts about the extent of the youth economic disengagement, while at school and at work. Today, close to half of the Brazilian youth aged 15-29 years old is not fully economically engaged, because they are neither working nor studying, are studying in schools of poor quality, or are working in informal and precarious jobs. The report shows how the youth prospects in the labor market are dimmed by policies favoring existing workers over new entrants; in addition, it shows how youth are often ill equipped to meet an increasingly challenging labor market. The report suggests new education, skills, and jobs policy changes that Brazil could prioritize moving forward, so that it can take advantage of the last wave of its demographic transition. The report discusses in particular depth policies aiming to increase learning and reduce school dropouts in upper secondary education, and labor market policies that aim to support more effective and faster youth transitions from school to work.