Brazil must experience a decade of high unemployment, research points out

With weak growth and a deteriorating economic scenario, Brazil may have to live with high unemployment for a decade and only return to full employment in 2026.

The scenario is based on an analysis by economist Bráulio Borges, Ibre FGV (Brazilian Institute of Economics, Fundação Getulio Vargas) and LCA, based on projections from a Latin Focus Consensus report, published in the first week of November.

According to the economist’s calculations, the so-called full employment in Brazil considers that the unemployment rate should be between 8% and 10%. This equilibrium point, in which real wages grow in line with productivity, should only be reached from 2026 onwards, when the unemployment rate would drop to 10.1%.

The most recent period of unemployment below this band, according to the PNAD (National Household Sample Survey) Continuous, was recorded between 2012 —first year of the survey— and 2014, still in the term of former president Dilma Rousseff (PT).

In 2015, with the onset of a recession, unemployment grew, remaining above the break-even point in the quarter ended in February 2016 — a scenario that has continued since then.

If this expectation were confirmed, therefore, Brazil would have a decade of excessive unemployment, with the unemployment rate higher than the full employment band.​

According to the most recent Pnad Contínua, unemployment was 13.2% in the quarter ended in August 2021. It also points out that 31.1 million people were underutilized and 73.4 million were out of the labor force.

“To return to full employment in 2026, the GDP [Produto Interno Bruto] would have to grow at 2.2% from 2022 onwards, on average. But we already know that Brazil will not grow even close to that next year, and expectations are decreasing every week, due to the tightening of interest rates, high dollar, political noise and uncertainty regarding the next election”, says Borges .

The lost decade of the labor market, therefore, must be prolonged.

He points out that, although unemployment between 8% and 10% may seem high, it is necessary to consider that countries with less flexible labor rules tend to reach a break-even point from a higher level.

In this case, the level of full employment in countries such as Brazil tends to be higher than in others with a more flexible labor market and fewer worker protection mechanisms, such as the United States. There, this point would be between 3.5% and 4.5%.

Borges explains that when real wages grow above productivity, this generates inflationary pressure and “hyperemployment” — like the one that occurred until the beginning of 2015.

In the opposite scenario, when real wages grow below the economy’s productivity, the worker loses bargaining power to collect fair wages, something closer to the current moment.

Latin Focus estimates also point out that the Brazilian population should rise from 213 million to 219 million in the next five years, and that public debt —a factor that inhibits investments and increases risk— will stand at 85.1% of GDP in 2026.

New generation already in the labor market at a disadvantage

With nine unemployed in the family, Beatriz Ferreira, 19, started working earlier than planned. “I started selling dish towels when I was still at school, to help my mother.” At the age of 25, Alexandre Soares earns a living, between occasional jobs, playing the violin in train and subway stations in São Paulo, while looking for a steady job in civil construction.

Both help to make up a reality in which the generation that entered the labor market in the last five years has already left at a disadvantage.

Borges says that Brazil having an entire decade of high unemployment is not acceptable. “Ten years with an economy below full employment leads to an increase in impoverishment and precariousness, which has been happening since before the pandemic.”

He points out that when the labor market remains in imbalance for so long, the tendency is for the limit of full employment to be pushed upwards, and the country will get used to living with ever-increasing unemployment.

“Over time, we see the most qualified fleeing the country, due to the lack of better opportunities; at the base, part of the human capital is also harmed by the lack of experience in the job market.”

Unfortunately, the return to full employment is still a long way off, says sociologist Clemente Ganz Lúcio, from Dieese (Inter-Union Department of Statistics and Socioeconomic Studies).

“Not only is the picture dramatic from the point of view of unemployment and precariousness, but the economy has not had the muscle to get out of this crisis since 2015, with a dynamic far below its potential. The pandemic only served to aggravate this regressive context.”

Professor at UFRJ (Federal University of Rio de Janeiro) João Sabóia agrees that the return of sustained economic growth will be the decisive factor for the recovery of the job market in the coming years. This year, the return of employment is taking place with the formal market at a rate of job creation below what is necessary to reverse the effects of the pandemic, summarizes Sabóia.

“Brazilians are getting back to work, but without recovering what was lost last year. Growth is taking place from a very weak base and there is already talk of recession for 2022. It is very difficult to expect a recovery in work beyond the mediocre.”

Professor at UnB (University of Brasília) Carlos Alberto Ramos reinforces that even the last few years of economic growth had low performance, which postpones the recovery of employment.

“The growth model of the past decade ran out in 2013, but with the pandemic, in addition to the previous problems, our job market will still suffer from new technological shocks.”

Analysts point out that the coming years will require greater qualification and more investments in technology, and that Brazil’s entry into the international economy depends on a strategy to increase productivity through targeted policies.

According to Borges, the way to return to a heated job market in the post-Covid-19 period is to take advantage of the opportunities that arise with the energy transition that the world is planning and the investment in human capital for the new jobs that will arise with the called the green economy.

“For this, we need coordinated action to make the Brazilian economy more sustainable and take advantage of the potential for generating jobs from that. It is necessary to have leadership and coordination, two things that we do not have today.”

“With the current government, we are flirting with instability, which can be seen with the adventure of the hole in the spending ceiling. By disorganizing the fiscal side, what awaits us is a spike in interest rates and inflation, which never is. good for the job market”, says economist Bruno Ottoni, from IDados consultancy.