In the first quarter, the unemployment rate measured by PNAD rose to 7% from 6.6% in the fourth quarter of 2024. However, seasonally adjusted, the rate dropped 0.1 percentage point to 6.5%. Informal workers accounted for less than 38% of the labor force—excluding the pandemic period, this was the lowest level on record. At the time, the preservation of more formal jobs skewed statistics, with informality dipping to 36.5% in the second quarter of 2020 and average real income peaking, a level only surpassed last year. The share of informal workers rose again the following year, surpassing 40% in the second quarter of 2021, but fell back below that threshold in the same period of 2022.

In March, the number of informal workers declined for the fifth straight month, based on seasonally adjusted data from LCA 4Intelligence. Meanwhile, formal employment rose for the 16th consecutive month, accelerating recently, fueled by stronger-than-expected job creation. The General Register of Employed and Unemployed (CAGED) recorded a net gain of 71,500 formal jobs in March. While this was below analysts’ expectations, it helped offset February’s surprisingly high figure, when 431,000 jobs were added.

Growth and reforms

Fernando Honorato, chief economist at Bradesco, said the strong formal job market reflects Brazil’s solid economic growth—GDP has expanded by 3% or more for four consecutive years since 2021. “There were major stimulus measures during this period, from both the federal government and subnational entities [states and municipalities], which spurred activity. As unemployment falls, formalization increases, because employers must offer better conditions than informal work to attract workers. This happened in the previous growth cycle and is happening again,” he explained.

Since that last favorable period, a series of reforms, innovations, and developments have transformed the economy and labor market, further supporting this trend, analysts say. “These are hard to separate from GDP growth effects. Joaquim Levy [former finance minister] once said we’d only see the real impact of the labor reform during a strong labor cycle. And the pandemic hit right after the reform,” Mr. Honorato noted.

Passed in 2017, the labor reform reduced the risk of lawsuits after dismissals—cases that often result in financial shocks and cause companies to shut down. As a result, businesses became more willing to hire formally, said Alessandra Ribeiro, head of macroeconomic analysis at consultancy firm Tendências.

Although the number of labor lawsuits rose again in absolute terms, exceeding 2 million in 2024, economist Bruno Imaizumi of LCA 4Intelligence pointed out that, relative to the employed population and the stock of formal workers, the share of lawsuits remains well below pre-reform levels. He believes the reform still gives employers more confidence by lowering legal risks.

“This helps smaller businesses survive and hire more,” he said.

New contracts

Ms. Ribeiro highlighted that the reform also paved the way for new types of formal contracts, such as intermittent and temporary work. “Today, these account for around 11% of formal hires in the CAGED data,” she said. Other developments also contributed to this trend, including credit and capital market reforms that expanded access to financing and indirectly pushed for formalization.

“Companies that go public or issue bonds need to be more formalized, provide more transparency, and minimize risks to be vetted by banks and investors,” she added.

Mr. Honorato said credit reforms have been a major incentive for formalization. “The creation of the TLP [Long-Term Rate], which opened space for corporate debit, and the collateral framework reform are among several changes that boosted capital markets and encouraged companies to formalize in order to benefit.”

Ms. Ribeiro also pointed to improvements in education and technology. Between 2000 and 2022, the share of working-age Brazilians with higher education nearly tripled from 6.8% to 18.4%, Census data shows. Additionally, digital platforms have facilitated job matching. “It’s not just ride-hailing and delivery apps, but all platforms that reduce the cost of connecting employers and job seekers,” she said.

MEI effect

Another factor is the rise of the “individual microentrepreneur” (MEI) model, which employed 6.7 million people in February. Though often viewed as a form of disguised employment—an issue now under legal scrutiny after Supreme Court Justice Gilmar Mendes suspended related cases—MEIs are counted as formal workers in PNAD statistics.

“Some app drivers and couriers are MEIs, as the government wants. It’s complicated, because many value their independence and flexibility. But there are also those who opt in to access the social safety net or credit programs,” said Rodolfo Tobler, an economist at the Brazilian Institute of Economics at Fundação Getulio Vargas (Ibre FGV).

Mr. Imaizumi of LCA believes that formal job growth could continue as long as the economy stays resilient, easing fears of a sharper downturn in 2025. LCA forecasts unemployment will remain stable this year at 6.6%, with 1.4 million formal jobs created—300,000 more than previously estimated. “That’s fewer than in the past three years, but still a significant figure,” he said.

Tendências has also revised its average unemployment forecast for 2025, lowering it from 6.9% to 6.6%. Its estimate for net formal job creation rose from 1 million to 1.5 million.