A poverty profile and functional aspects of Brazilian labour markets

Brazilian labour markets are rather flexible in macroeconomic terms while also displaying microeconomic rigidity. Macroeconomic flexibility is characterized by the significant growth in employment in both good and bad times. Microeconomic rigidity is translated into high turnover rates, frequent litigation, and rising informality. This dichotomous relationship is mediated by the third side of the labour market that can be best represented by labour market institutions. These have contributed to the current state of affairs by means of a rather stringent labour code, rent-seeking labour unions, a system of labour courts that encourages litigation, mistargeted social security benefits that send wrong signals to workers and employers, feeding informality and weak labour relations. The joint effect of this state of affairs is conducive to economic inefficiency, income inequality and stable poverty levels, as the economy becomes unable to absorb in an equitable way those entering in the labour market and barriers to overcome the poverty line become more and more strong. As a consequence, labour market indicators have deteriorated over the 1990s, hurting the young, female and least educated workers. Over the 1990s, for example, female unemployment was 30% higher than male's. Gender and race discrimination is still an important issue in the country, although several studies point to a significant increase in the returns to education of female workers over the last 15 years or so. At the same time, informal employment has displayed a structural growth embracing currently 50 percent of the workforce. There is also evidence that a significant share of this contingent of informal workers is in the informal sector voluntarily not only to escape the grasp of labour legislation but also due to low formal sector wages. Slave work has not been covered in this report, as there are no published references available in the main academic sources and think-tanks specialised on the study of labour issues. Globalisation has hurt more the unskilled share of the labour force and had a limited capacity to improve poverty and inequality indicators. Liberalising measures adopted in the early 1990s increased both imports and exports feeding the demand for skilled labour at the expense of the unskilled. The result of this phenomenon was a net loss of jobs in the labour market. Poverty rates and inequality indices, therefore, continue to be the one of the highest in the world. Although there are no reported evidence on the existence or not of social dumping in Brazilian exports, indirect results show that the main Brazilian export firms use highly skilled labour, due to the capital intensive technology bias they have historically adopted, making it difficult to believe that social dumping in Brazil is an issue de facto. In terms of labour market flexibility, the picture in Brazil, as portrayed in this report, hints to the need of a substantial labour reform. A reform that should focus on changing signals and incentives to workers and firms so that more lasting and quality labour relations can arise, with implications such as lower job turnover rates, less litigation, higher labour productivity, and less informality, with consequent positive effects in terms of poverty and income inequality reduction. Although not an easy task, if accomplished, this reform should align incentives and price labour correctly, paving the way for a healthy and effective labour market flexibility. Perhaps then the expected positive impacts of greater efficiency and economic integration might be transmitted to the workforce in a more equitable fashion in Brazil.