Analysis: Recovery of formal employment is temporary

The Brazilian labor market shows a strong recovery of vacancies in 2021. The total number of people employed in the quarter between July and September 2021 is only 139 thousand vacancies below that observed in the quarter between January and March 2020. In other words, we have already recovered almost all of them the 10.5 million occupations lost from the outbreak of the pandemic until the quarter between June and August 2020. At the same time, we observed a drop in real income 4% in the quarter ended in September compared to the quarter ended in June, both this year. This combination of an increase in employed persons and a reduction in wages should be observed in the coming months, except for a worsening of the pandemic.

The strong resumption of formal vacancies is another good news. This year, we have recovered more than 2 million formal jobs. Formal vacancies are growing in our two labor market data sources: Pnad Contínua (Continuous National Household Sample Survey) and Caged, released by the federal government. However, we must not be mistaken. Formal employment is still at 890 thousand vacancies below the pre-pandemic level, and its expansion should lose steam after the recovery of the vacancies lost in the pandemic.

By the third quarter of 2021, unregistered employment increased by 1.7 million, surpassing the pre-pandemic level by 262 thousand. The number of occupations of self employed rose 2.5 million in 2021, already representing 1.59 million more jobs than before the pandemic. Thus, the dynamics of the labor market must occur in employment without a formal contract and by self-employed workers.

That’s not news. Since the 2015/2016 recession, the increase in occupations has been driven by self-employed and unregistered workers. The economy had not yet recovered the 2.8 million registered jobs lost in the 2015/2016 recession when the pandemic hit the country in 2020. In the same period, the economy had increased the number of unregistered and self-employed jobs in 2.3 million and 3.0 million, respectively. Thus, the generation of vacancies in the Brazilian labor market, since the 2015/2016 recession, has had a predominance of unregistered and self-employed jobs.

Dynamics based on these two categories should be the “new normal”. The increase in formal employment should only occur in a cycle of accelerated growth, something that has been absent over the last few years. To make matters worse, the growth rate of Brazilian potential output has declined over time and is currently low, at around 2% per year. As a result, a dynamic in the labor market driven by formal employment should be increasingly rare.

Additionally, we observe that an important part of the increase in self-employed workers is given by those with CNPJ. In other words, among the increase of 3 million occupations of self-employed workers between 2016 and 2021, more than 64% represent formal self-employed workers, the so-called pejotization.

The difference in the cost of hiring a self-employed worker with a CNPJ and an employee with a formal contract is substantial. Since it began to be measured by the IBGE, in the quarter between October and December 2015, own accounts with CNPJ grew 1.9 million, with an increase of 45% in the period. In the same period, the employed population grew by only 600 thousand. Thus, the self-employed with CNPJ must increase their participation in the coming years.