Brazilian labour market amidst Coronavirus pandemic: Impact and way forward

Workers sit idle in front of Copacabana Palace, a hotel in the city of Rio de Janeiro, Brazil, facing Copacabana beach

By Dr Ian Prates*

The impact of the Coronavirus pandemic is diverse and every nation is combating it in its own fashion. It is important to note that the policy measures implemented during the pandemic are strongly related to the state of the economy before the pandemic. The state of the Brazilian labour market amid the pandemic cannot be seen in isolation from the pre-Covid times. Its story seen through the Gini Coefficient shows that in the 1980s to 1990s there was a period of great instability. As we entered the 21st century, there has been a significant decline in the Gini Coefficient. This hints at the improved labour market policies seen in the trend of formalization and a real increase in the minimum wage. But the 2014-2016 recession marks a reversal in the equalizing trend that Brazil had been on. In 2017, unemployment rose to 13.7% and the declining informality rate started increasing in 2016.

The household income, that has been rising steadily from the mid 2000’s, has been strongly affected by the 2015-16 crisis, with a small recover after 2018. The coefficient of household income per capita follows a similar trend of increasing inequality from 2015 but a small decline in 2019. These suggest that the economy was on a recovery path since 2018. Having said that, the lives of the poorest 20% was downcast. While, between 2012-2014 the poorest ones increased their income relative to the richer ones, in 2015-2018, there was a significant drop in the income of the poor as compared to the richer.

The mercantilisation of social policies is one of the main reasons of the escalating inequality. The total budget of the Bolsa Família cash transfer program declined since 2014 and so did the number of families who were beneficiaries of the program – about 1.5 million families were excluded from the program. Additionally, the average benefit reduced in this period. At a time of crisis when the poorest were affected disproportionately, policies that hurt the affected section were implemented in the place of a recovery policy. During the time of the economic crisis, the government also decided to make the unemployment insurance coverage rules stricter causing an overall decline in the unemployment insurance coverage rate.

It is in such a setting that the pandemic hit Brazil, a moment when the bottom half of the population was in distress. Though the economic crisis had disappeared in 2018-2019, the lower half did not experience the same.

In the course of the pandemic, only 49.7% of the working-age population was in employment. Due to lockdown policies, labourers had to leave the labour market; about 10 million workers left the labour force during the pandemic. Although they were not officially considered unemployed, they were economically inactive and were outside the labour force. The improvement over the years in the size of the labour force reversed and in the second quarter of 2020, Brazil returned to the level it was before 2012. An additional 15.7% of the labour force chose to not seek employment due to the pandemic. The true expanded measure of unemployment stood at 27.7%.

The two important policy measures to fight the pandemic with regard to the labour market were the “Emergency Basic Income” and “Emergency Benefit for Preserving Employment and Income”. The first was the Emergency Basic Income, the biggest welfare programme in Brazilian history, through which congress guaranteed income to the informal, unemployed, and poor families. The potential beneficiaries (over 60 million) received $110 as a cash transfer in the first three months and $55 in the next three months. Secondly, about 11 million beneficiaries in the formal labour market were benefited through the complementary benefit paid by the government to avoid lay-off of workers through the Emergency Benefit for Preserving Employment and Income.

The Emergency Basic Income policy was way too far from compensating for the negative effect of income lost due to unemployment. However, if it were not for the policy, the real income of the poorest families would not have improved. Since the value of the benefit was above the poverty line, those on the bottom 20% of the income distribution line were able to receive more income than they had before the pandemic. This change is temporary and the cause of joy to many will vanish as the new year begins. Brazil will be plunged into a new bitter reality where millions will be thrown into poverty. Brazil is bereft of the luxury to gradually reduce the value of the benefit because the public debt will overshoot 100% of the GDP, thus breaching the standard it set in 2016 to control rising debt.

Furthermore, the impact of the pandemic on the labour market has made racial and gender inequality evident. Blacks accounted for about two-thirds of those who lost their job, and more women were unemployed than men. Of the women who did not seek employment during the pandemic, 16.7% did so because of having to devote their time to care activities at home.

Moreover, the pandemic not only increased the existing inequality, but it also created new ones. One such is the rise in the digital and telework inequality. Only 10% of the people in Brazil worked from home. Analyzing the data across occupations shows that before the pandemic those who worked from home were mostly non-professionals like tailors, salesperson and bakers. Post the pandemic, professionals who previously did not work from home as much like lawyers, teachers, engineers, were the ones who worked mostly from home. This sheds light on the inequality that technology creates in jobs and reiterates that the future would also be shaped by the way digital inequalities are distributed among the Brazilian labour force.

There is a disproportionate effect between social groups and the way forward must take this element into consideration when redefining the social security system. The immediate future is bleak with regard to how the welfare scheme will be amended and then would follow a different scenario with greater crisis to face if the economy does not recover through other means.

*Researcher, Brazilian Centre of Analysis and Planning. Theses are excerpts from the lecture by Dr Dr Ian Prates at the Impact and Policy Research Institute (IMPRI), New Delhi.

Acknowledgements: Dr Arjun Kumar, Director, IMPRI; Gby Atee, Research Intern, IMPRI and undergraduate student from Ashoka University

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