Falling wages and loss of purchasing power limit economic growth in Brazil

RIO DE JANEIRO, BRAZIL – Brazilians face an unfavorable scenario of high inflation and unemployment and a decline in workers’ incomes. The “perfect storm” stands in the way of a sustainable economic recovery process after the losses caused by the new coronavirus pandemic.

In the coming years, it will tend to hinder the effective growth of gross domestic product (GDP) – the sum of all goods and services produced in the country.

In February, the average wage for temporary workers with a formal contract fell to R$1,878.66 (US$400), down 3.1% from January and a real decline of 11.78% in 12 months. At the same time, the average real income of Brazilians stands at R$2,511, the lowest level ever recorded for a quarter ended in February.

In assessing the economic impact of the data on production, Fausto Augusto Junior, technical director of Dieese (Interdisciplinary Department of Statistics and Socioeconomic Studies), says that investment and labor income are the only ways to increase a country’s GDP growth.

“When you put resources at the bottom of the pyramid, that money is added to the economy. We saw that with emergency aid, which prevented our GDP from falling more because the poorest had a foot in the economy,” says Augusto Junior.

The president of Cofecon (Federal Council of Medicine), Antonio Corrêa de Lacerda, affirms that the latest indicators suggest that more than 29 million Brazilians are without vocational training, which further slows the development of GDP.

“This 25% of the labor force is not only outside the labor market but is also not part of the consumer market, which is exacerbated by the lower purchasing power of the population and high inflation. Thus, significantly decrease in potential demand, which affects growth in a vicious circle,” says Lacerda.

For Augusto Junior, the scenario of decreasing salaries of professionals transforms the way out of the sanitary collapse into an economic crisis. “Although more jobs have been created, less money is circulating in the economy than a year ago, when we were at the height of the pandemic,” he laments.

MINIMUM WAGE

Among the unfavorable conditions for the Brazilian economy is the minimum wage purchasing power loss, which serves as a floor for various industries and has not been adjusted in real terms since 2019.

Previously, Law 13152 of 2015 established that the minimum wage should be calculated based on the expectation of the current year’s e INPC (National Consumer Price Index and the real GDP growth rate two years prior, which guaranteed a real increase.

According to Augusto Junior of Dieese, the expiring policy guaranteed better wages for professionals paid at the minimum wage and so increased the income of informal and domestic workers.

Lacerda, in turn, highlights employment and income generation as the “engine” of economic growth. “A country with our shortcomings cannot avoid prioritizing growth on a sustainable basis. […] The lack of policies to improve wages, especially the minimum wage and pensions, exacerbates the problem,” analyzes the president of Cofecon.

The economists’ perception is also reflected in the data of the Salary Meter of Fipe (Fundação Instituto de Pesquisas Econômicas). According to the indicator, in February, workers suffered a real loss in 55.7% of concluded negotiations, and only 29.2% received further compensation above inflation.