Brazil’s unemployment rate matched a record low in November, but the seemingly positive figure hides an alarming change in Latin America’s largest economy: fewer Brazilians are working and even less are looking for work.
The shift reflects ongoing uncertainties amid a dramatic slowdown in Brazil’s economy over the past three years.
After emerging as an economic powerhouse on the same level as China and India with 7.5% growth in 2010, Brazil now finds itself teetering on the brink of recession after the economy shrank 0.5% in the third quarter.
The once-promising future has been dragged down by ongoing fallout from the global financial crisis, an overvalued currency that crimped exports and a burdensome bureaucracy that drives up the cost of doing business.
Heavy government intervention in the economy has also caused investments to plummet, removing an important motor of growth. Brazil’s gross domestic product is expected to post a meager expansion of 2.3% in 2013, according to the Brazilian Central Bank‘s latest survey of economists.
That’s well below the 4.5% growth Brazil’s government estimated at the start of the year. For next year, growth is pegged at 2.0%. With such a gloomy outlook, businesses are more reluctant to hire. So how come Brazil’s unemployment rate plummeted to 4.6% in November from 5.2% in October?
As in most other countries, the unemployment rate is determined by the relationship between the number of people employed in the workforce and the number of people actively seeking a job, noted Ricardo Barboza of the Federal University of Rio de Janeiro‘s Economics Institute.
“A slowdown in Brazil’s GDP will typically generate an upswing in unemployment,” Mr. Barboza said. But this time, the two factors have diverged. The number of people employed in Brazil has declined, but the number of people looking for work has declined at a much faster pace, Mr. Baroboza said.
That pushes down the unemployment rate. IBGE researcher Cimar Azeredo, who manages the unemployment survey, said it’s hard to tell why more Brazilians have stopped looking for jobs.
The year-end scramble for jobs could have put extra downward pressure on November’s unemployment number. “It could be that they’ve already arranged a temporary job that starts Dec. 1 and stopped looking for work in November,” when the survey was carried out, Mr. Azeredo said.
Or they could be frustrated by poor prospects for employment and stopped looking for work, he said. But there may be longer-term factors at play too. When a Brazilian stops looking for a job, the IBGE counts them as economically inactive–a group that grew to 18.6 million people in November, Mr. Azeredo said.
The group typically includes seniors, homemakers and students from elementary to university level. “The movement to abandon the work force could be related to increases in incomes,” Mr. Azeredo said, noting that women and students typically aren’t needed to supplement family incomes during times of prosperity.
Brazil’s average monthly income hit a record in November, rising 3% from November 2012 to 1,965.20 Brazilian reais ($843.47).
For economists, the continued increase in salaries is the most worrisome bit of data from November’s unemployment survey because it means inflationary pressures will remain persistent.
Low unemployment means companies have to pay more to hire and retain workers, passing along salary increases to consumers in the form of higher prices for everything from haircuts to car repairs. Inflation was running at 5.85% through mid-December, higher than the government’s 4.5% target.
“The slower pace of growth in the Brazilian economy means fewer jobs in the future,” said Andre Perfeito, chief economist at Sao Paulo’s Gradual brokerage. “That would force wages lower, and that’s good news for Brazil.”
wsj.com
The shift reflects ongoing uncertainties amid a dramatic slowdown in Brazil’s economy over the past three years.
After emerging as an economic powerhouse on the same level as China and India with 7.5% growth in 2010, Brazil now finds itself teetering on the brink of recession after the economy shrank 0.5% in the third quarter.
The once-promising future has been dragged down by ongoing fallout from the global financial crisis, an overvalued currency that crimped exports and a burdensome bureaucracy that drives up the cost of doing business.
Heavy government intervention in the economy has also caused investments to plummet, removing an important motor of growth. Brazil’s gross domestic product is expected to post a meager expansion of 2.3% in 2013, according to the Brazilian Central Bank‘s latest survey of economists.
That’s well below the 4.5% growth Brazil’s government estimated at the start of the year. For next year, growth is pegged at 2.0%. With such a gloomy outlook, businesses are more reluctant to hire. So how come Brazil’s unemployment rate plummeted to 4.6% in November from 5.2% in October?
As in most other countries, the unemployment rate is determined by the relationship between the number of people employed in the workforce and the number of people actively seeking a job, noted Ricardo Barboza of the Federal University of Rio de Janeiro‘s Economics Institute.
“A slowdown in Brazil’s GDP will typically generate an upswing in unemployment,” Mr. Barboza said. But this time, the two factors have diverged. The number of people employed in Brazil has declined, but the number of people looking for work has declined at a much faster pace, Mr. Baroboza said.
That pushes down the unemployment rate. IBGE researcher Cimar Azeredo, who manages the unemployment survey, said it’s hard to tell why more Brazilians have stopped looking for jobs.
The year-end scramble for jobs could have put extra downward pressure on November’s unemployment number. “It could be that they’ve already arranged a temporary job that starts Dec. 1 and stopped looking for work in November,” when the survey was carried out, Mr. Azeredo said.
Or they could be frustrated by poor prospects for employment and stopped looking for work, he said. But there may be longer-term factors at play too. When a Brazilian stops looking for a job, the IBGE counts them as economically inactive–a group that grew to 18.6 million people in November, Mr. Azeredo said.
The group typically includes seniors, homemakers and students from elementary to university level. “The movement to abandon the work force could be related to increases in incomes,” Mr. Azeredo said, noting that women and students typically aren’t needed to supplement family incomes during times of prosperity.
Brazil’s average monthly income hit a record in November, rising 3% from November 2012 to 1,965.20 Brazilian reais ($843.47).
For economists, the continued increase in salaries is the most worrisome bit of data from November’s unemployment survey because it means inflationary pressures will remain persistent.
Low unemployment means companies have to pay more to hire and retain workers, passing along salary increases to consumers in the form of higher prices for everything from haircuts to car repairs. Inflation was running at 5.85% through mid-December, higher than the government’s 4.5% target.
“The slower pace of growth in the Brazilian economy means fewer jobs in the future,” said Andre Perfeito, chief economist at Sao Paulo’s Gradual brokerage. “That would force wages lower, and that’s good news for Brazil.”
wsj.com
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