Formal employment drives up employment rate; informal jobs continue to expand, with 40% of the total

07/22/2024

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Lucas Assis — Foto: Claudio Belli/Valor

The Brazilian job market has shown a clear trajectory of expansion in the last two years, after the pandemic crisis hit the market, which had not yet recovered from the 2015-2016 recession. Month after month, new records are seen in the number of formally employed workers and the mass of income, among other indicators. Other components are returning to levels not seen for a decade, such as the number of unemployed workers, that were not seen for a decade, such as the number of unemployed workers, which is below 8 million for the first time since 2015. However, the country’s positive employment figures still include a high level of informality.

Nearly 40% of employed Brazilian workers are in the informal sector. This share has reduced recently but, as the total number of unregistered jobs grows along with formal work, the volume of people in informal work positions continues to expand.

Over the more than eight years of the Continuous National Household Sample Survey (PNAD Contínua) informality rate series—an indicator measured since the fourth quarter of 2015—, only in four moving quarters the share of informal workers remained below 38%. The highest number ever was 41%, indicating a 4.5 percentage point range between the minimum (36.5%) and the maximum.

All quarters measured below 38% were in 2020, the first year of the pandemic, when informal workers were expelled from the job market due to social distancing measures. The share of formal workers among employed people increased but that happened through the composition effect.

“The informality of a relevant part of jobs is a characteristic of the Brazilian job market and represents an important source of inequality,” said Lucas Assis, the economist at Tendências Consultoria in charge of monitoring the job market. “As a result, there is a large number of workers with no access to social benefits, such as social security and paid leave, including maternity leave or sick pay,” he said.

The informal segment has a less stable employment relationship and does not include labor rights—such as sick pay and retirement—and historically offers lower compensation. Reducing informality and increasing the level of formalization of the job market is part of the United Nations Sustainable Development Goals (SDGs), under the eighth topic, “Economic Growth and Decent Workdecent work.” The informality rate is used as a reference for monitoring this SDG.

While Brazil is below the world average (58%) and at the average of the least developed countries (89.1%), it is well above the level seen in European and North American countries, of 11.4%, according to 2023 data from the UN Statistics Division. More than 2 billion people are currently working in informal jobs worldwide.

In Brazil, the PNAD Contínua indicated 39.13 million informal workers in the quarter ended in May, which is the most recent data. When measuring the informal segment, the Brazilian Institute of Geography and Statistics (IBGE) includes private sector employees without an employment registration book, domestic workers with no registration, employers and self-employed workers with no corporate taxpayer ID number, and contributing family workers receiving no compensation.

Adriana Beringuy, IBGE’s coordinator of household sample surveys, emphasizes the high share of informality in the Brazilian job market, despite the role of the formal sector in recent growth.

“The increase in the number of employed workers driven by formal workers doesn’t mean the number of informal workers has been falling. It has only been losing share but remains a very important line of the employed population,” Mr. Assis said, about the new PNAD Contínua. “The increase of the employed population is happening through the formal employment but also the informal employment.”

Liana Carleial, economics professor at the Federal University of Paraná (UFPR), says the informality rate is now just a reference, as the poor conditions of the market as a whole are bringing workers in the formal sector closer to those holding informal jobs.

“The informal category is now just a reference; it means nothing else than that. Formal workers work 12 hours and in poor conditions. It makes more sense to talk about having or not social rights,” the professor argues when considering what makes the two categories of workers different from each other.

Among informal workers, one group deserves attention: the 25.5 million self-employed people, or 25.1% of the 101.3 million employed people. Ms. Carleial criticizes the increase in entrepreneurship, which she says acts to hide the low share of salaried workers in Brazil. “Less than 50% of workers are salaried. There is a large number of self-employed workers, representing 25% of all employed workers,” she said.

Ms. Carleial cites France as a successful story of job market conditions. She notes that 87.3% of workers there are salaried, of whom more than 70% have indefinite-term contracts.

“We can see Brazil’s situation is poor in different ways. In France, nearly 90% of workers are salaried, which is a successful story. It is a solid, salaried society. That’s not our case,” she noted.

One of the differences between formal and informal workers is income. It tends to be the highest among formal workers. Lucas Assis says the transition from informal to formal employment increases the probability of improving income from work, both in absolute and relative terms.

However, the economist points out that income gains with formalization do not benefit all workers equally. “The shift to formal employment has greater potential for improving income from work for the richest,” he noted.

Like other indicators in the country, the informality rate presents inequalities, with worse rates for the poorest. Lucas Assis highlights differences by region, level of education, color, or race. Informality predominates in the North and Northeast regions, decreases according to the level of education, and varies according to color or race, whether men or women.

In the first quarter of 2024, when the informality rate in Brazil was 38.9%, this share was 70.9% among workers with no education and 63.2% among those with incomplete primary education. At the other end, the rate was 19.1% for those with a higher education degree and 29.8% for those with incomplete higher education.

In the analysis by color or race, the share of informal workers was 33.6% for white employed workers, below 41% for Black people, and 43.5% for mixed-race people. Regional data also show inequalities and range between 30.5% in the South and 52% in the North region. The other rates are 51.3% in the Northeast; 34.1% in the Southeast; and 34.6% in the Central-West.

“The Brazilian productive structure still has elements and labor relations typical of underdeveloped economies, such as the large number of workers in domestic services, mostly women,” Mr. Assis said. “The construction segment, also characterized by low income and high informality, predominantly employs men.”

*Por Lucianne Carneiro — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/