The labor market in Brazil, 2001–2015

Pre-2000s period

Between 1950 and 2005, the Brazilian labor market underwent a significant process of structural change, with the largest share of employment moving from agriculture to the manufacturing and service sectors. Figure 1 provides evidence of how productivity growth is associated with a massive transition of workers from less productive sectors (such as agriculture) to more productive sectors (such as financial and personal services) [1].

Figure 1 shows that in 1950 the agricultural sector had the highest employment share. However, it also had the lowest productivity of all sectors, and lost a greater employment share than other sectors between 1950 and 2005. This structural change brought about substantial increases in labor productivity due to sectoral shifts in labor force composition, but unfortunately came at the expense of a large increase in wage inequality. This increasing trend in inequality was only interrupted in the mid-1990s as a result of monetary stabilization and a rapid increase in schooling among the labor force. Figure 2 shows the long-term trend in inequality [2].

Education

At the turn of the century, Brazil universalized access to basic education. This caused the average schooling of the labor force to jump from six to almost nine years in the decade and a half since the reforms were passed. Accordingly, Figure 3 shows that the proportion of private sector workers with at least a high school education has substantially increased.

Despite the fact that school quality is still a troubling problem and that a large share of students do not have access to higher education, advances in the average amount of schooling contributed to a fall in the returns to education over the same period [3]. Among workers with the same set of observable characteristics in 2001, one additional year of schooling raised earnings by 10.9%; by 2015, this had dropped to 8.3% (as shown in Figure 4). The reduction in the returns to schooling contributed to a drop in wage inequality because the difference in labor earnings between more- and less-educated individuals fell.

Minimum wages and formal employment

Perhaps the most important policy affecting labor income in Brazil has been the continuous elevation of the minimum wage over the last 20 years. From 2001 to 2015, the minimum wage had real gains of 91%. As seen in the illustration on page 1, the rise in the minimum wage coincides with increases in real earnings. This is explained by the fact that the minimum wage works as a reference for companies to price labor.

A potential side effect of these real increases in the minimum wage is the incentivizing of firms to hire workers without a formal labor contract, thus making the minimum wage non-binding and increasing informality. Nevertheless, informality decreased from 2001 to 2015, due especially to the prolonged economic boom throughout this period. However, informality remains high in an international context; as shown in Figure 5, despite increasing significantly since 2000, less than half of Brazil’s workers held formal contract jobs in 2015. Of course, other reasons, like the existence of high labor taxes, also help to explain this.

The relative increase of formal contract jobs together with the rise in average schooling reduced income differentials between formal and informal workers between 2001 and 2015. However, despite decreasing from 41% to 33% over this period, the wage gap between formal and informal workers remains high, as seen in Figure 6.

Labor force and inequality

Over the period of this analysis, labor force participation fell for both men and women. Female participation decreased from 57% to 56%, while male participation dropped from 84% to 80%. At the same time, the share of women among labor force participants remained slightly above 40%. Despite the substantial difference between male and female labor force participation, the gender gap in labor income has fallen from 49% in 2001 to 41% in 2015, though this remains a rather large gap (see Figure 7).

The ethnic earnings gap is analyzed by comparing the groups formed by white workers (taken here to include those of Asian descent) and non-white workers. In Brazil, non-white people represent 55% of the adult population, and by 2015 represented the largest share of the labor force (55.5%). On average, they study an average of 1.7 years less than the white population. Ethnic gaps in labor income dropped from approximately 17.5% in 2001 to 15.5% in 2015, as shown in Figure 8.

Unlike the fairly consistent declines in the gender and ethnic earnings gaps, the regional earnings gap has evolved erratically during this period. This gap is significant, as different regions in Brazil have very different labor market situations. In 2015, the regional earnings gap remained high, at 31%. Brazil’s South-Center region (in which the major cities of Sao Paulo and Rio de Janeiro can be found) holds the majority of the country’s jobs and population (around 69% of the labor force and 64% of population in 2015) (Figure 9).

Unemployment

Economic growth throughout the 2000s was accompanied by low unemployment rates. However, starting in 2015, Brazil has experienced its worst economic crisis in over a quarter of a century as a result of fiscal and political issues. Figure 10 shows that 2015 represented a turning point in the labor market. In the two years since, real monthly wages have fallen and unemployment has almost doubled. Nevertheless, the minimum wage kept increasing in real terms. Given the large fraction of workers that are not covered by labor contracts, the recent rises in the minimum wage may have contributed to an increase in income inequality, both by displacing workers from formal jobs and from employment overall. As more data become available, future studies should investigate the causal link between real minimum wage increases and inequality.