Except for 2020, when pandemic affected statistics, formal job generation is the stronger since 2016
Fernando Honorato — Foto: Ana Paula Paiva/Valor
After a recovery movement that impacted jobs in the informal sector, with lower quality and lower pay, the recovery of the Brazilian labor market has been led by the creation of formal jobs, especially those with contracts. In line with the stronger-than-expected growth of the Brazilian economy since the beginning of the year, this type of employment has also been surprising, leading analysts to revise their projections for the labor market at the end of the year.
According to the New General Register of Employed and Unemployed Workers (Caged), the economy generated 1.9 million formal job positions in the private sector in the last 12 months through April. Of these, 705,000 were generated in the first four months of the year alone. The real average starting salary reached R$ 2,015.58, still 8% below the level seen in January 2020.
This number helped the formalization rate of the labor market to reach 61.1% in the April quarter, according to data from the Continuous National Household Survey (Pnad Contínua). This level has not been reported since 2016, when official records began, except for 2020, when the formalization rate spiked amid the wave of layoffs caused by the pandemic, which particularly affected the lower classes.
“Both the Caged and the Pnad have showed an increase in the supply of formal jobs. In a way, this is part of the normalization process of the labor market after the initial post-pandemic recovery, which was concentrated in the informal sector. What surprised us was the extent of the improvement in the formal sector,” said Bruno Imaizumi, an economist at LCA Consultores.
For Mr. Imaizumi, most of these jobs can be explained by normalization after the pandemic — not only offices and stores, but also schools and hospitals. Public administration, according to him, is benefiting from these trends, as well as from the change in government. “We have seen a recovery of job openings in the public sector after four years of losses, and it is to be expected that a Workers’ Party administration will be reflected in a stronger hiring trend,” he said.
The same reasoning applies to the construction sector, which also remains heated due to the stock of concessions recently granted. “Although it is a sector more sensitive to credit and with a large participation of informal workers, we see some resilience, mainly due to the resumption of public works, a sector where the formalization of employment is more demanded.”
There is another possible reason for this stronger-than-expected recovery, Mr. Imaizumi said. “We may be underestimating the impact of the reforms that have been implemented over the past decade,” he said. “We know, for example, that labor reform has greatly reduced malicious prosecution, and that small businesses — which contribute the most to job creation — are hit hard when a labor lawsuit is filed. Therefore, this reduction in litigation may have contributed to the survival of more companies.”
For Fernando Honorato, chief economist at Bradesco, another factor that may be contributing to greater retention in the formal labor market is the pension reform. “It’s not something very tangible, it’s another hypothesis that we have and that still lacks data. But what we have observed is that the labor force participation of people over 50 has increased. We still need econometric robustness to prove that this happened because of the pension reform. But it makes sense: the reform has increased the time it takes for a worker to retire, in terms of contribution time. And the profile of those who typically retire through this system is the formal market worker,” he said.
“These people, by design, have an easier time finding work, their productivity is higher – in certain occupations, it’s the age when you reach the peak of productivity,” said Vitor Vidal, also with Bradesco.
Another, more concrete factor that could contribute to the heating up of formal jobs is the unit labor cost. According to the bank’s calculations, it is still 2.7% lower than in the fourth quarter of 2019. “This cost had been growing last year, but in a restrained way. And even with the largest minimum wage adjustment in seven years in 2023, the unit labor cost fell in the first quarter,” Mr. Honorato said. “If we add this factor to the labor reform, it could mean that the ease of hiring has increased, including for the base of the pyramid, the service sector.”
The growth in formal employment is led by employment with a contract, while the group of self-employed people, which includes micro-entrepreneurs (MEI), did not show a positive result in the period, said Lucas Assis, an economist at Tendências Consultoria.
On the other hand, the recovery in formal employment could still be linked to a more resilient performance than expected in the consumption of goods by households in the first quarter, said Thiago Xavier, with Tendências. According to IBGE data, the GDP of commerce was up 0.3% in the first three months of the year, despite the expectations of most analysts of a decline.
“We imagined that tighter financial conditions would curb this consumption, but credit to individuals remain firmer than expected,” Mr. Xavier said. “One hypothesis is that although financing is more expensive, people feel more comfortable using it precisely because they have a more stable job, which traditionally pays more than an informal job.”
All in all, Tendências expects 1.2 million job openings in Caged in 2023, which may help bring the average unemployment rate down to 8% this year. According to Mr. Assis, formalization may continue to grow along with the recovery of the “public administration, defense, social security, education, human health, and social services” sector. “It is important to note that the GDP of public administration services ended last year still below the pre-pandemic level, that is, the fourth quarter of 2019 (1% below the pre-pandemic level). In 2023, it is expected to close this gap between the current level at the end of 2022 and the pre-pandemic level; therefore, there is still some room for normalization of this activity.”
Mr. Imaizumi, on the other hand, expects the Caged to show that 1.5 million formal jobs were created in 2023. “This is a higher projection than the average of economists, but below the 2 million created in 2022 and consistent with a lower GDP this year as well.”
Nonetheless, he sees little room for further progress in labor formalization in the Brazilian economy. “Since mid-2022, this rate has been increasing and now seems to be stabilizing. However, this rate will not change much in terms of amplitude over time. It may even advance, but it will always come up against the skills of the average Brazilian,” he said.
Mr. Vidal, with Bradesco, has a similar view. “In order to leave this historical level of formalization of the labor market, around 60%, there are structural barriers. Not only worker productivity, which hasn’t grown in three decades, but also the cost of hiring needs to be reduced even more. Despite the labor reform, Brazil is still considered a country with low flexibility, especially in labor-intensive sectors,” the economist said. “Even during the peak of the pandemic, when formal jobs peaked due to the wave of layoffs, it did not reach 64%, and was still far from the 70% of the most developed economies.”
*Por Marcelo Osakabe — São Paulo
Source: Valor International