Productivity per effective hour worked fell 0.5% in Q4 and edged up just 0.1% last year
03/17/2025
Although Brazil’s overall economy grew at a similar pace in 2023 and 2024, labor productivity followed a different trend in the two years. In 2024, productivity per effectively worked hour increased by just 0.1%, compared to a 2.3% rise in 2023, when it grew above the country’s historical average. The data, obtained in advance by Valor, comes from the Regis Bonelli Productivity Observatory at the Brazilian Institute of Economics (FGV Ibre).
For 2025, researchers at the observatory do not expect significant productivity gains, warning that it may even decline. They caution that an economy growing above its potential without productivity gains fuels inflationary pressure.
Productivity is measured by comparing the added value—a variable similar to gross domestic product (GDP) but excluding taxes and subsidies—with labor factor indicators. In 2024, the economy’s aggregate added value rose 3.1%, while effective hours worked increased by 3%. This resulted in a productivity variation of just 0.1%. “Virtually all GDP growth came from employment and working hours,” said Fernando Veloso, who co-leads the observatory alongside Silvia Matos.
Effective working hours account for reductions due to illness, holidays, or shorter work shifts—such as those implemented during the COVID-19 crisis—as well as increases driven by production peaks and overtime compensation.
Considering other labor factors, the number of hours usually worked grew 3% in 2024, while the employed population increased by 2.8%. As a result, productivity measures registered increases of 0.1% and 0.3%, respectively.
The COVID-19 pandemic disrupted the labor market in 2020, keeping the most qualified and potentially most productive workers employed. This led to a 12.7% surge in productivity per effective hour that year. In 2021 and 2022, as this “composition effect” faded, annual productivity dropped by 8.1% and 4.4%, respectively.
Mr. Veloso noted that 2023 was the first “normal” year, and productivity initially showed an unexpected increase. “In Brazil, any increase, even a small one, is always surprising. It appeared in the first quarter of 2023, breaking the pattern seen in 2022, and again in the second quarter, but then gradually slowed down until disappearing—depending on the metric—by the fourth quarter of 2024. It was truly a temporary phenomenon,” he said.
In the fourth quarter of 2024 alone, productivity per effective hour worked fell 0.5% compared to the same period in 2023 and declined 0.9% from the previous quarter. As a result, it now stands just 0.9% above pre-pandemic levels. Compared to the expected trend before the COVID-19 shock, productivity is running slightly above that level but continues to follow a very similar trajectory, Mr. Veloso said.
“All of this increase came from just one or two quarters at the beginning of 2023 and then stopped. There has been absolutely no productivity growth momentum since the second quarter of 2023,” he said.
Record harvest
Mr. Veloso emphasized the significance of productivity growth, as it helps contain inflation and enables lower interest rates. “GDP growth with rising productivity is not inflationary. But if it’s only a temporary increase, even if it has a positive effect on inflation, it’s not something the Central Bank can rely on for monetary policy,” he noted.
As in 2023, the agricultural sector was the key driver preventing an even worse productivity performance in Brazil last year. While the sector’s added value dropped by 3.2%, effective hours worked fell even further, by 4.8%. This resulted in a 1.6% increase in agricultural productivity in 2024, following a 22.3% surge in 2023 due to a record harvest.
“Agriculture performed much worse than in 2023, which made all the difference for 2024. But even when production declines, the sector remains a success story—fewer workers still lead to higher productivity,” Mr. Veloso said.
Meanwhile, productivity per effective hour worked in the industrial sector fell 0.5% in 2024, while the services sector remained flat after rising 2.1% and 0.5%, respectively, in 2023. “Services are the main sector of Brazil’s economy, both in GDP share and employment. It had a tiny increase in 2023 and zero growth in 2024. When the services sector lacks momentum, any productivity gains depend entirely on agriculture,” Mr. Veloso said.
For Paulo Peruchetti, an economist at FGV Ibre, the historical data compiled by the observatory from 1995 to 2024 shows that agricultural productivity per effective hour has grown at an average annual rate of 5.8%, far outpacing aggregate productivity, which has risen just 0.8% per year. Over the same period, services sector productivity has averaged only 0.2% growth, while industrial productivity has declined by 0.3% annually.
“Agriculture’s productivity growth is continuous, and without it, there is no aggregate productivity growth,” Mr. Veloso concluded.
Total factor productivity (TFP) per effective hour worked, which measures how efficiently capital and labor are transformed into production, fell by 0.8% in 2024 after rising by 1% in 2023. By the end of 2024, TFP remained 5.8% below its pre-pandemic level. “It’s a bleak picture,” Mr. Veloso said.
Since 2021, job creation in Brazil has been predominantly in the formal sector, which typically has a positive effect on productivity, according to researchers at FGV Ibre. However, this impact has yet to materialize. “And now, at the margin, there already seems to be a slowdown in employment in 2025,” Mr. Peruchetti noted.
With economic activity still strong but productivity gains absent, the adjustment to inflation will have to come from a slowdown in employment, Mr. Veloso said. This trend is beginning to appear in official data on formal employment from the General Register of Employed and Unemployed Workers (CAGED). “At the start of last year, the labor market seemed set to follow a trajectory similar to 2022, but in the second half of 2024, formal job creation began to lose momentum,” he said.
Looking ahead, in a simplified projection, if FGV Ibre expects Brazil’s economy to grow by 1.7% in 2025 while the employed population increases by 2%, productivity would decline by about 0.3% this year, Mr. Peruchetti noted. “There is still a lot of data to come,” he cautioned. “But productivity was stronger in 2023, slowed in 2024, and will likely remain stable or see a slight decline in 2025. This follows the pre-pandemic pattern.”
Mr. Peruchetti pointed out that in 2017, productivity per effective hour increased by 2.1%, also driven by an exceptional agricultural harvest. In 2018, it slowed to 0.5%, and in 2019, it fell by 1.5%. “At that time, however, we had a functioning spending cap. Now, we have a fiscal framework that has proven very weak. In some ways, we are in an even worse situation,” Mr. Veloso said.
Economist Vitor Vidal from consulting firm VVC also highlighted the similarity between current productivity levels and those seen just before the pandemic. However, he pointed out other key differences. “Today, unemployment is much lower than it was back then, when the economy was growing at 1.5% and the unemployment rate was in the double digits,” he said.
According to his calculations, productivity fell by 0.3% in 2024, with a 0.5% drop in the fourth quarter. However, he said some recovery might occur in the first quarter of this year, given expectations of another record harvest.
Taking a longer-term view, a study by Santander found that Brazil’s productivity metrics have followed a cyclical pattern over the past 12 years without showing sustainable growth. This has constrained the country’s potential GDP expansion, particularly amid declining population growth and investment restrictions, according to the bank’s economists.
Even if TFP returns to positive levels, they said, achieving potential GDP growth above 2% per year will be difficult. “Even under the relatively optimistic assumption that productivity will not decline in the coming quarters, the long-term trend points to lower potential GDP growth stabilizing at around 1.5%,” wrote Santander economists Henrique Danyi, Gabriel Couto, and Felipe Kotinda in their report.
*By Anaïs Fernandes — São Paulo
Source: Valor International