Unemployment of Young People Jeopardizes the Future of Social Welfare in Brazil

By Richard Mann

RIO DE JANEIRO, BRAZIL – Young Brazilians are the most affected by the weakening of the labor market. In the first quarter of this year, 41.8 percent of the population aged 18-24 were underused, i.e., they were unemployed, gave up looking for work or were available to work longer hours a week.

In absolute numbers, there are 7.337 million underused young Brazilians, the highest number ever recorded since the National Household Sample Survey (PNAD) began in 2012 when the number of unemployed in this group was 4.26 million, representing an unemployment rate of 27.3 percent.

The most challenging scenario for young people is evident when one compares the growth of the underemployed population from 18 to 24 years, with a total of Brazilians.

Between 2012 and the first quarter of this year, the share of sub employed people in the Brazilian economy went from 20.9 percent to 25 percent, while among young people aged 18 to 24, the increase was from 30.1 percent to 41.8 percent.

“Looking at those who join the market today, the situation is difficult because they are faced with a stagnant economy, a job market with many unemployed people and people without experience who compete with well-qualified unemployed people who would be willing to work for a lower salary,” explains Juliana Inhasz, coordinator of Insper’s Economics program.

Juliana Inhasz also cautions that once the welfare reform is approved, people will have to work longer to retire — and this generates greater competition within the market.

Although unemployment affects young people of all levels of education, those with a lower educational level suffer the most under this scenario; and the more significant number of trained unemployed people produces effects on both fronts: unemployment for those with low qualifications, and underemployment for those who are qualified.

With younger workers out of the labor market, there will be fewer contributions to the social welfare system and, consequently, a deficit in the social welfare accounts.

A survey by iDados consultancy shows that there has been a considerable decrease in the proportion of young people contributing to social welfare in recent years. In 2012, 36.5 percent of this population was part of the system; by the end of 2018, this share had dropped to 28.5 percent.

The current Brazilian pension plan model is contributory — that is, active workers pay pensioners’ benefits.

With fewer young people joining the system and more Brazilians retiring, the imbalance in accounts is likely to increase, increasingly jeopardizing social welfare, which hit a record low of R$290.2 (US$ 72.5) billion in 2018.