Labor Productivity in Brazil Retreats 1.1 Percent in the First Quarter

By Richard Mann

RIO DE JANEIRO, BRAZIL – Amid a scenario of declining economic power and growth in casual employment, labor productivity in the economy has shrunk again in the first quarter, according to a study by the Brazilian Institute of Economics of the Getulio Vargas Foundation (IBRE/FGV) obtained exclusively by Estadão/Broadcast.

Productivity per work hour in the Brazilian economy retreated 1.1 percent in the first quarter of the year, compared to last year. Over the same period, the Brazilian Gross Domestic Product (GDP) grew 0.5 percent.

“Hours worked are rising, but are not generating output in the same proportion. It is as if more people were being hired, but with lesser productivity”, explained Fernando Veloso, IBRE/FGV researcher.

Productivity has generally declined in the three major economic sectors.

Agriculture and ranching escaped from red, with a 0.4 percent increase in productivity per work hour in the first quarter of 2019 compared to the same quarter the year before, yet the result was far below the growth recorded in the last quarter of 2018 (2.8 percent).

Following the devastating collapse of the Vale dam in Brumadinho and the crisis in Argentina, the industry suffered a 1.2 percent decline in labor productivity in the first quarter, interrupting a sequence of 12 consecutive quarters of progress.

The major negative impact on the economy was the poor performance of the service sector, accounting for seventy percent of the total number of hours worked in the country. Service sector labor productivity shrank 1.2 percent in the first quarter of 2019 compared to the same quarter of the previous year. It was the twentieth consecutive quarter with a loss.

According to Fernando Veloso, this obstacle in the service sector was caused by the informal provision of services by workers migrating from formal companies to casual work. The researcher recalls that the formal sector is approximately four times more productive than the casual sector.

A further assumption would be the displacement of the labor force from more refined services, generating more added value, to less complex services, with lower productivity: an engineer who lost his job and started to work as an Uber driver to ensure the family’s sustenance, for instance.

According to the IBRE/FGV researcher, the key to increasing labor productivity in Brazil involves a government policy agenda which includes tax reform, improvements in labor legislation and the pursuit of actions to improve the credit market.