Analysts predict that labor market will calm down and average income will evolve slowly
01/13/2023
Unlike what most economists expected, the recovery of the Brazilian labor market started in 2021 maintained steam in 2022 — not only recovering from the losses caused by the Covid-19 crisis but also bringing down the unemployment rate to levels not seen since 2014. However, even in the face of signs of red-hot hiring — which weakened at the end of the year, the real average income of workers grew more slowly and has not yet returned to pre-pandemic levels. Economists estimate that this process may come to an end only in 2023 or even in the following years.
According to the latest Continuous National Household Sample Survey (Pnad Contínua), the average real income of Brazilians reached R$2,629 in the October quarter, up 4.7% compared to the same period in 2021. Still, it is between 2% and 3% below the pre-pandemic period, depending on the seasonal adjustment applied.
Unlike the recovery in employment, which took place gradually between 2021 and 2022, the flattening of income has been slow to reverse itself. At first, after the pandemic hit, many Brazilians ended up accepting lower wages or lower job positions to get back into the market. This situation led the average real income of workers to drop 8.9% in December 2021, when compared to the levels seen in February 2020, according to calculations by LCA Consultoria.
“During the pandemic, the ample idleness of the market put the bargaining power in the hand of companies and employers,” says Rodolfo Margato, with XP Investimentos. “Now, with current unemployment even below the Nairu [rate below which the labor market begins to impact inflation], the situation has reversed and the bargaining power would be more on the side of employees,” he adds. Mr. Margato ponders that the situation varies a lot depending on the industry and the region — in Santa Catarina, the unemployment rate is around 5%, while in states of the Northeast it reaches 12%.
Another factor that “delayed” this convergence was inflation, whose variation in 12 months reached double-digit levels between September 2021 and July this year, which ended up eroding the purchasing power of the adjustments, even in the face of strong nominal increases.
With the expected deceleration of inflation in the coming months and a labor market still heated, the real income is expected to continue recovering, said Mr. Margato. XP calculates that this indicator is still 3% below the pre-pandemic level and that this hole will only be closed in the second half of 2023.
For Gabriel Couto, an economist at Santander, another factor that helps to slow down the recovery of the real income was the lack of adjustment for civil servants in the last two years. “A faster recovery, in this sense, would depend on movements to replace the losses of this segment of workers,” he says.
Mr. Couto evaluates that this movement will be slow in the short term, in the wake of a more restrained labor market. Santander estimates that the average annual unemployment rate may grow slightly again in the next two years, to 10.1% in 2024 from 9.5% in 2022. Accordingly, it says, the average real effective income — a metric that considers the usual income and also extraordinary or occasional variations, such as bonuses —, is not likely to fully recover until 2025 or stay until 2026.
/i.s3.glbimg.com/v1/AUTH_37554604729d4b2f9f3eb9ad8a691345/internal_photos/bs/2023/M/B/QaJ223RnAcCuFpH8VzUg/221216imaizumi051.jpg)
Bruno Imaizumi — Foto: Leonardo Rodrigues/Valor
In the calculations of Bruno Imaizumi, an economist at LCA Consultores, the return to the pre-pandemic level may only happen in the first half of 2026. Contributing to this very gradual scenario is a still significant contingent of the population with informal jobs and the cooling of employment dynamics.
Another way to measure the loss of purchasing power of workers, he says, is to use the basic food basket as a proportion of the average nominal income. Using prices practiced in São Paulo, Mr. Imaizumi calculates that, on average, workers spent 22% of their income to buy the basket in February 2020. The proportion reached 31.3% in April 2022 before dropping back to 27.7% in October.
“What I want to highlight is that income may improve, but perhaps not at the same speed as the variation of important prices for some groups, such as food,” he says. He estimates that the basic food basket would be 25.2% of income at the end of 2024. Mr. Imaizumi’s scenario also contemplates a relatively stable labor market, with the average unemployment rate dropping to 8.8% in 2023 from 9.2% in 2022.
A final factor that may help delay this movement is the slowdown in the generation of formal jobs — which generally pay better salaries. After consistently exceeding expectations in the first half of the year, the creation of formal jobs has lost momentum. In October, 159,000 jobs were created, according to the General Register of Employed and Unemployed Workers (Caged), against expectations of 210,000.
“Some studies are starting to show that, given the slowdown in the economy, informality is gaining some steam again,” says Rodolpho Tobler, an economist with the Brazilian Institute of Economics (Ibre), of Fundação Getulio Vargas. He ponders, however, that he hardly sees this rate surpassing 40%. In August, informality was a record 39.1%, but it has slightly decreased since then.
*By Marcelo Osakabe — São Paulo
Source: Valor International