Almost 600,000 companies closed their doors, hampering job recovery in Brazil

RIO DE JANEIRO, BRAZIL – The situation concerns experts because of the ripple effect on the labor market: when a company closes its doors, the income of more than one person (owner and employees) is jeopardized.

In the second quarter of 2019, before the health crisis, Brazil had 4.369 million employers. It was the highest mark for the April through June interval in the historical series, with data starting in 2012.

The number began to decline in 2020 due to the pandemic, until it reached 3.788 million in the second quarter 2021. When compared to the same period in 2019, the most recent result represents a decrease of 13.3% – or 581,300 fewer employers in 2 years.

The decline in percentage terms is second only to that recorded in the domestic workers category, which fell by 18.3%.

The recovery of employers is considered crucial for the opening of new jobs in the country. Between the second quarter 2019 and the same period in 2021, the number of employees in the private sector fell 10.1%, from 44.7 to 40.2 million, a decrease of 4.5 million job openings.

“We know how bureaucratic the task is to establish yourself as an employer in the country, because there are barriers, and we saw a pandemic-related drop in the group,” says Economics professor at Insper, Sergio Firpo. “The point is that by abandoning the business, employers cease to hire someone else. This has a ripple effect on their and other workers’ income.”

Experts point out that in times of crisis, smaller businesses are usually the most affected. Compared to large companies, businesses with fewer employees tend to have limited financial reserves to withstand shocks such as Covid-19, and access to credit is also more difficult.

Smaller entrepreneurs, more numerous in Brazil, pushed the loss of business during the pandemic. In the second quarter 2019, Brazil had 3.198 million employers with between 1 and 5 employees. They represented 73.2% of the total at the time. In the same period in 2021, the figure dropped to 2.731 million (72.1% of the total).

That means that of the 581,300 employers lost in the interval, 467,400 (or 80.4%) employed between 1 and 5 people.

“There is a domino effect. The closure of a company is ultimately reflected not only on the employer, but also on the other people who depend on the business,” says IDados consulting researcher Bruno Ottoni.

Before the Covid-19 crisis, Caio Matos, 35, ran 3 restaurants in malls in São Paulo, Atibaia (SP) and Pouso Alegre (MG). With the business paralyzed by the pandemic restrictions, he decided to close the units in June last year. The restaurants totaled 18 employees.

“The situation became very delicate, not least because they were stores in malls. I had just opened one of the units. I sat down with my wife, and we decided to close down, pay the employees’ severance, and try to re-enter the job market,” he says.

Matos had to change his line of work and, to his relief, he found a new job quickly. He says that, still in June 2020, he was invited by an acquaintance to work in the commercial sector of a solar energy company in Pouso Alegre.

After accepting the proposal, he took courses to adjust to the new position. Matos says he was able to pay off debts and that he is happy with his new job. For now, he does not plan to be an employer again. “I intend to remain in my current job for a long time,” he says.

Experts point out that the recovery in the number of employers – which, in turn, will boost the number of employees – will depend on a steadier reaction from the economy as a whole. However, the recovery attempt is threatened by risks such as rising inflation and the political crisis.

Financial institutions project GDP (Gross Domestic Product) rise under 1% in 2022.

In this context, the creation of measures to facilitate entrepreneurs’ access to credit is a path that needs to be considered in Brazil, experts suggest. “Issues related to the concession of microcredit are very important. With interest rates rising again, the situation becomes more complicated for the small employer,” Firpo says.

Ottoni agrees. “The credit issue is relevant. It is not simply giving money to microentrepreneurs, but also thinking about policies that accompany the development of the business. When we talk about public policies, you have to analyze what empirical evidence exists.”

Before the pandemic, between 2017 and 2019, the number of employers was increasing in Brazil. In the second quarter 2017, there were 4.173 million in this condition. The amount grew by 4.7% (196,000 more) to reach 4.369 million in the second quarter 2019.

With 2 partners, entrepreneur Gisele Paixão Barthar, 42, just before the pandemic opened a clothing and accessories store in downtown Rio de Janeiro that sought to value the Afro culture.

Business was good after the opening, till November 2019, but the arrival of the coronavirus in the first quarter 2020 reversed the scenario. With the restrictions imposed by the crisis, the store, which had 1 employee, was shut for 4 months last year, Gisele recalls.

According to her, despite the reopening of activities, the flow of customers in the central region of Rio has not returned to pre-pandemic levels. The situation forced the permanent closure of the store this year. “We reopened last year, but other stores and companies nearby either closed or switched to home office. This decreased our clientele,” she says.

The entrepreneur now has new plans. She intends to resume online sales soon, with the support of her partners, but with no employees, at least at first. “Our goal is to restructure the store, get back to promoting and selling our designer products.”