Record Informal Employment Cuts Brazilian Economy’s Productivity

RIO DE JANEIRO, BRAZIL – The record informality in the labor market is contributing to a drop in the productivity of the Brazilian economy, which is slowly recovering from the recession experienced between 2014 and 2016.

Under normal circumstances, when an economy grows and creates jobs – a situation that has been observed in Brazil despite the crisis – there is greater investment in innovation, equipment, training, and productivity increases. In other words, each worker can produce more with fewer hours worked. But what has been happening is precisely the opposite.

Brazil currently has 38.8 million informal workers, a record number, corresponding to 41.4 percent of the workforce. The job vacancies generated between 2018 and 2019, nearly all of which are informal, pay less and are less productive, characterized as “temporary jobs”, such as maids, home-based vendors, app delivery workers and street vendors, according to an unprecedented study by the Brazilian Institute of Economics of Getulio Vargas Foundation (Ibre/FGV).

FGV’s calculations show that productivity per hour worked in the economy stagnated in 2018, interrupting a rebound that began in 2017 and began to decline this year. In the first quarter, the drop was 1.1 percent and 1.7 percent in the second. The trend surprised economist Fernando Veloso, Ibre/FGV researcher. “The natural trend would be to expect a rise.”

According to Veloso, even though it is virtually stagnant, with an improvement of around one percent per year since 2017, the Brazilian economy should record some increase in productivity. But, while the most recent estimates point to the growth of 0.9 percent this year, the Ibre/FGV projects a 0.8 percent drop in productivity per hour worked.

Informal work has emerged as one of the factors suspected of being the cause of the atypical phenomenon. The new Ibre/FGV survey, conducted by researcher Laisa Rachter with data from IBGE’s National Household Sample Survey (Continuous Pnad), corroborates the assumption: people who were unemployed or who were not seeking employment in the second quarter of 2018 became informally active this year earning half, on average, (R$823.49 per month per person) of the informal workers who were already active (R$1,588.06 per month per person).

Paying a lower wage is a typical feature of low-productivity occupations. The fact that the income of new informal workers is even lower than that earned by long-time informal workers suggests that people who are about to join the market in 2019 are taking on any kind of job, to contribute whatever they can to the family income, says Laisa.

More hours worked, less production

Aircraft mechanic Willian Esau de Leon, 42, tired of looking for work in his area of training. For the past five months, he has been working as an app driver in Rio. In other words, he switched from a more productive job, in the segment of specialized services, to a less productive one, which requires only a basic qualification – knowing how to drive.

His last job as a mechanic was in 2015. Since then, he has worked odd jobs, as a wall painter, or remained out of the job market, taking care of his son who is now two years old, while his wife was finishing her doctorate. Attempts to deliver resumes to the Santos Dumont, Galeão, Jacarepaguá, and Maricá airports, all in Rio, were in vain. Working as a driver was a last resort. “I prefer to work as a mechanic more than driving. I studied for that”, he says.

Leon’s story has often been repeated in Brazil in recent years. With no jobs in the formal economy with a signed worker’s record book, informality now affects 38.8 million people or 41.4 percent of the workforce. And this is directly reflected in growth, with the economic productivity pointing to a drop this year.

Hours worked

The economy’s productivity calculation takes into account the value added, used to measure the Gross Domestic Product (GDP), and the total number of hours worked. The added value rises and falls according to the pace of the economy.

The number of hours worked increases or decreases both according to the number of workers (more people working increases the total number of hours) and according to how much each person works (the number of people working may be the same, but the total number of hours increases if each person works longer).

According to Fernando Veloso, a researcher at the Brazilian Institute of Economics of the Getulio Vargas Foundation (Ibre/FGV), the labor market is slowly catching up. Between the third quarter of 2018 and the same period this year, 1.468 million job vacancies were created, according to the most recent IBGE data. As a result, there is an increase in the total number of hours worked.

The problem is that “these hours worked are apparently being used for unproductive activities”, contributing to low growth. “The hours worked increase, but the added value does not. Therefore, productivity declines. We have more people, more hours (worked) and production does not increase,” he says.

Tax system

For economist Gabriel Ulyssea, a specialist in the labor market and professor at Oxford University in England, the fact that informal work is dragging the generation of job vacancies is a sign of a move towards a less productive part of the economy.

The professor considers the tax system to be the main problem of productivity in Brazil. “Informality allows several companies with low productivity to remain active, because they do not pay taxes, hire without a signed worker’s record book, circumvent a number of issues and this allows them to have lower operating costs,” said Ulyssea.

Wrong ‘Timing’ for Informal Laundry

Rodrigo Silva Sousa, 41 years old, worked for 15 years in industry, in the South region of Rio de Janeiro, until he was fired in February. He spent two years at MAN Latin America, a manufacturer of Volkswagen trucks, with a plant in Resende (RJ), interspersed with a five-year period, between 2013 and 2018, in the beverage industry.

After his dismissal in February, Sousa even tried to find a job in the south of Rio industrial hub, but he found a context of “general crisis,” he said.

With two children – a 20-year-old boy and a seven-year-old girl – Sousa and his wife, who works at home with crafts, sought alternatives to compensate for the gross salary loss of R$2,900 a month he used to be paid.

Industrial jobs are regarded as the most productive, but Sousa’s first work alternative was marked by unproductivity. He and his wife set up an informal laundromat at home, which eventually failed to yield the expected return. The couple bought a washing machine and a “little tank” and adapted an area of the house where the family lives in Resende.

According to Sousa, the project failed because they lost the “timing” to harness on the demand for laundromats by the cadets of the Agulhas Negras Military Academy (AMAN), located in the city. They set up the business in April when the new group of cadets had already undergone the initial adaptation and found other laundromats to provide the service. To complement the income, Sousa took some odd jobs as an electrician.

Now, the former industrial worker hopes for better days ahead as a partner in a locksmith’s shop, working by setting up aluminum bars, doors, and gates. Also informally, he has been working in a friend’s workshop since October.

Source: Estadão Conteúdo