Shorter workweek could raise costs, inflation, economists warn

Brazil’s decision to end the six-day workweek could increase labor costs, put upward pressure on inflation, and force companies to rethink staffing, economists say. But some argue that productivity gains, lower absenteeism, and reduced employee turnover could help cushion the impact.

Fernando de Holanda Barbosa Filho, a researcher at Fundação Getulio Vargas’s Brazilian Institute of Economics (FGV Ibre), said the main concern is that shorter working hours could reduce productivity and weigh on gross domestic product. He also warned of higher costs and legal uncertainties for employers.

“Creating a second paid day off could bring even more complications for a company, increasing costs per employee,” he said.

According to a report by FGV Ibre, the new legislation could raise labor costs by up to 20% for companies currently operating on a 44-hour workweek. Barbosa Filho also warned of a potential increase in employee turnover, as companies might replace existing workers with cheaper labor.

The proposal to end the six-day workweek was rushed through the approval process, leaving several loose ends, according to Luis Otávio Leal, chief economist at G5 Partners.

He said the measure could affect inflation, particularly because of the proposed short transition period. The investment firm’s hypothetical calculations suggest that such a rapid transition could add up to 0.5 percentage points to annual inflation, as measured by Brazil’s official consumer price index, the IPCA.

Leal estimated that the measure would increase labor costs by around 10%, based on a rough calculation that does not account for additional hiring, which he believes productivity gains would be insufficient to avoid. “There is a significant inflationary issue built into this proposal,” he said.

Some have compared the potential impact with the reduction in the maximum workweek from 48 to 44 hours under Brazil’s 1988 Constitution, noting that no discernible effect on prices was observed at the time. However, Leal argued that the two situations are not comparable.

“That is because inflation in 1988 was almost 30% a month. It was impossible to isolate the net effect of a change in working hours.”

Bruno Imaizumi, an economist at 4intelligence, calculated that changing working hours would require a 1.4% increase in Brazilian productivity to offset potential GDP losses.

According to Imaizumi, while 74.7% of formally employed workers have contracts stipulating 41 to 44 hours a week, only 31.8% actually work that many hours. The largest group, 39.5%, works between 31 and 40 hours a week, according to data from Brazil’s statistics agency, IBGE.

Imaizumi said several factors could mitigate the measure’s negative effects on productivity, including a possible decline in absenteeism, more people entering the labor force, and greater participation by women, who could find it easier to balance work with other responsibilities.

He also expects employee turnover to decline, helping companies reduce training and recruitment costs.

The decision is likely to impose substantial transition costs on the Brazilian economy at a time when it is still operating close to capacity, said Sergio Vale, chief economist at MB Associados.

Beyond the potential effects on companies and employment, Vale warned that companies could pass higher costs on to consumers. “The impact of changing the work schedule on costs varies from company to company, but it could reach 6% or 9%. And in an economy that is still running hot, despite slowing down, there is a strong possibility that those costs will be passed on,” he said.

Vale cautioned that a victory by presidential candidate Flávio Bolsonaro, of the Liberal Party (PL), could reverse the measure’s implementation, even though the senator has changed his position and declared his support for it.

At the same time, Vale expressed concern about efforts to approve another proposal to change labor rules, a constitutional amendment concerning working hours. Among other provisions, the proposal would pay workers based on the hours they actually work, rather than on a weekly work schedule, as is currently the case.

The proposal, introduced by Senator Rogério Marinho, a coordinator of the PL presidential campaign, is “much more radical,” Vale said.

“At a time when the focus is on fiscal issues, as it is now, it would be better not to approve such major changes one after another without allowing time to understand their effects.”

“I find it difficult to see enough support to approve changes as radical as this one—which essentially seeks to introduce a system similar to that of the United States—at a time when a major change, the end of the six-day workweek, is already being negotiated.”

Naercio Menezes Filho, an economist and professor at Insper and an associate professor at the University of São Paulo’s School of Economics, Business and Accounting, offered a different perspective.

He said the extra day off would let workers rest, enjoy leisure activities, and care for their children, potentially improving productivity at work and even offsetting companies’ increased costs.

*By Guilherme Paiva, Grace Vasconcelo, Marcelo Osakabe, Marta Watanabe and  Vinícius Lucena — São Paulo

Source: Valor International

https://valorinternational.globo.com/