Brazil’s Troubled Labor Market Will Take Time to Turn the Corner

(Bloomberg) -- Brazil’s labor market may take longer to improve as President Jair Bolsonaro’s administration seeks to reverse years of massive job destruction and anemic recovery.

The nation’s unemployment rate in the three months through January rose for the first time since early 2019, to 11.2%, according to numbers published on Friday. While that’s lower than a year ago, joblessness is still seen remaining in the double digits throughout 2020.

An expected spike in the number of new positions this year doesn’t tell Brazil’s full labor story, which includes increases in informality, stagnant incomes, and low productivity. Further clouding the job outlook is the global outbreak of coronavirus, which is prompting some analysts to warn of a possible blow to the local economy. “Coronavirus may lower GDP growth and slow labor market gains, but there will still be advances,” said Rafaela Vitoria, chief economist at Banco Inter SA.

Read more: Brazil’s First Virus Case Adds Risk to Growth Malaise

Here is an overview of the top three drivers and three mains drags for Brazil’s labor market this year:

Faster Growth

As of now, Brazil’s GDP growth is expected to double to about 2.2% this year, and that increase will translate into 900,000 new formal jobs even amid coronavirus concerns, according to Fundacao Getulio Vargas, a business school known as FGV. If that forecast pans out, it will represent a surge of nearly 50% in the number of new posts over 2019. There are signs a stronger economy is luring job seekers. “The main factor that we are going to see is the return of discouraged workers to the labor force,” said Daniel Duque, a researcher at FGV.

Brazil’s Troubled Labor Market Will Take Time to Turn the Corner

Lower Rates

Labor-intensive industries benefiting from Brazil’s record-low benchmark interest rate -- such as construction, retail and services -- are primed for their second straight year of robust job growth in 2020. Low borrowing costs are also supporting economic optimism, which, in turn, is helping lower unemployment, according to Adriana Dupita, a Latin America economist at Bloomberg Economics.

Brazil’s Troubled Labor Market Will Take Time to Turn the Corner

Hiring Rules

New rules allowing for flexible contracts helped create more than 80,000 posts last year, and their popularity is rising quickly. Under this model, companies may opt to pay an hourly -- rather than monthly -- wage for employees. Furthermore, those contracts stipulate payment for the time employees actually worked. Many companies consider this type of contract as an attractive option for entry-level workers and people returning to the labor market after a long period on the sidelines, and it has become an alternative to temporary hiring during holidays or a busy season. “This model is based on the idea that what determines the salary isn’t the type of contract, but rather the demand for the workers’ services,” said Andre Perfeito, chief economist at Necton Investimentos.

Brazil’s Troubled Labor Market Will Take Time to Turn the Corner

Informality

There’s no sign that the informality in Brazil’s job market will fall from current record levels any time soon. For example, nearly 4 million Brazilians rely on mobile apps such as Rappi and Uber to generate income, according to the country’s statistics institute, IBGE. While offering flexible schedules and the chance to have an income, such positions tend to provide less job stability and fewer rights. Furthermore, there will be fewer opportunities in the sector going forward, according to Duque.

Brazil’s Troubled Labor Market Will Take Time to Turn the Corner

Net Income

Brazil’s average net incomes have been stagnated in inflation-adjusted terms since at least 2012, according to the IBGE, coinciding with years of weak economic growth. When considering the self-employed, average incomes are even lower. Adding insult to injury, new hires on average receive lower salaries than workers who had been let go, according to a study from Itau Unibanco.

Brazil’s Troubled Labor Market Will Take Time to Turn the Corner

Low Productivity

Pitiful output levels are holding back both salary growth and economic expansion. A Brazilian worker takes about one hour to produce a good that an average U.S. employee would make in just 15 minutes, according to a study by the Conference Board, a New York-based research organization. Low schooling levels, as well as lagging infrastructure and technology are seen among the main culprits.

©2020 Bloomberg L.P.

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