According to London-based research firm Capital Economics, Brazil’s “puzzling” labor market has continued to defy gravity even as the economy has slowed to a crawl – from 7.5 per cent in 2010 to about 1% in 2012.

Here is what the CE’s emerging markets team led by Mr. Neil Shearing had to say:

“The most puzzling aspect of Brazil’s poor economic performance of the past 18 months is that it has come alongside an improvement in the labour market. We think the explanation lies in Brazil’s low rate of productivity growth. This means that employment may hold up even if economic growth remains lacklustre. But the current high rates of pay growth look unsustainable unless productivity accelerates.

…The movement of workers from the informal “grey” economy to the official (or “white”) economy gives the effect that jobs are being created, when in reality the overall level of employment is unchanged.

… Poor rates of productivity growth make Brazilian firms more reliant on hiring additional workers to increase output. As a result, even at low rates of GDP growth, the economy continues to create jobs.

… Brazil’s productivity problem is underlined by the types of jobs that are being created.

Bottom line: the unsustainable pace of pay growth is another sign that Brazil is reaching the limits of its consumption-led growth model.

Source: Capital Economics

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8 Responses to Brazil’s labour market strength is puzzling considering the weak economy, says Capital Economics

  1. Roger John Maudsley says:

    I find the article itself puzzling. We read that “The most puzzling aspect of Brazil’s poor economic performance of the past 18 months is that it has come alongside an improvement in the labour market.” Yet Chart 1 apparently shows formal job creation falling over the last 18 months. Or does “job creation” not equate to “improvement in the labour market”?

  2. Scott says:

    As long as high import duties remain, there is no incentive for local producers to become more efficient. As other countries become more effective at producing goods at lower cost, Brazil becomes even less competitive in the global market place. The result is higher prices (i.e. inflation) and the inability to weaken currency (i.e. can’t lower interest rates). Brazil is heading for the inevitable squeeze play, which is going to push the newly minted middle class back into poverty. Meanwhile, the wealthy have been moving there money outside of Brazil, investing in the US by buying up real estate at a fraction of the value (smart people).

  3. raffbr2 says:

    Oh dear… the funny thing is that no one seems to read the report from IBGE. The survey is a sample of the biggest cities. The trick is to use the “population economicamente ativa” which is 24.6m, instead of “populacao em idade ativa” which is 42.5m. This means that we have 18m people who can work but do NOT. Add this to the number of employed and you get a unemployed rate of 45%. This may be the worst case, but this is much more realistic. Another government trick. Doubt? See here

  4. raffbr2 says:

    This is a bit old but hey, same lines to show my point:

    22m people working out of a population of almost 200m:?

    Something smells funny here no? 22m people employed of a country of 200m? Unemployed rate of 4.5% – right….

  5. frank stein says:

    Why is anybody surprised by government lies? That is the same kind of lie of the Brazilian middle class that lives in slums and makes less than 200 dollars a month. The folks who produce the statistics do not want to lose their jobs therefore they follow orders.

  6. dcf says:

    I gather the IBGE’s PME survey just looks at the six biggest metro areas, but the annual PNAD does the whole country – and this doesn’t show much higher unemployment. Is that right, raffbr2? That doesn’t change the point about people of working age who don’t work, though.

  7. raffbr2 says:

    The sample is about the biggest cities, I am aware of it. However, is the % that is a joke. If you expand the area, but keep the same phony methodology, the beautiful/magic 5% ish unemployment rate will pop up again.

    I question the denominator of the equation, that s all.

  8. HB says:

    The “populacao em idade ativa” is 10 year olds and upwards, so below 18 shouldnt be counted especially as teenagers are staying longer and longer in education and higher education attendance is increasing rapidly.

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