Brazil - The Labor Force and Income Levels

The labor force and income levels

Substantial growth and structural transformations raised Brazil's per capita income from the low-income range in the late 1950s to the upper middle-income range in 1980. Despite the economic problems of the 1980s, per capita income remained in the upper middle-income range. Structural change had an important effect on employment and earnings and on income distribution and poverty.

Employment

The metropolitan Gini coefficients for 1970 and 1988 show that all the MRs except for Curitiba experienced a deterioration in income distribution. The coefficients for 1988 also show that the distribution of income was worse in the Northeast MRs and better in S�o Paulo and in the two Southern MRs, but the differences were not large.

Estimates indicate that in 1990 the nine MRs had a combined total number of poor of almost 12.3 million people, or 28.9 percent of the total population of the MRs. S�o Paulo and Rio de Janeiro had the largest absolute number of poor (over 3 million, or nearly 24 percent of the total MR poor each), but the highest levels of urban poverty were in the MRs of the North/Northeast.

Despite a decline of 4.0 percent in GDP, the unemployment rate was only 4.3 percent in 1990, as opposed to 7.9 percent in 1981. Meanwhile, an extensive informal economy (see Glossary) expanded, acting as a cushion and absorbing a growing number of people that the formal sector failed to employ. The informal sector included not only large numbers of street vendors, peddlers, and providers of petty services but also large numbers of middle-class workers as artisans, self-employed agents, and backyard business operators. Moreover, established businesses used the informal sector as a means of avoiding taxes, increased regulations, and the costs associated with being registered as employed.

Moreover, data on the distribution of monthly earnings reveal that the distributive disparity has increased over time. In 1960 the poorest 10 percent of the employed labor force with earnings received 1.9 percent of the total earnings, but in 1990 their share was only 0.8 percent. At the other extreme, the richest 10 percent increased their share of total earnings from 39.6 percent in 1960 to 44.1 percent in 1990.

During the 1980-90 period, total employment increased, despite the sluggish economy. Between 1981 and 1990, the average rate of GDP growth was only 1.6 percent annually; industry averaged only 0.5 percent annual growth; agriculture, 2.6 percent; and the services sector, 2.7 percent. Total employment, however, increased 2.8 percent annually, from 43.9 million to 62.1 million persons. The average rate of unemployment in the period jumped from around 4 percent in the still prosperous years of 1979 and 1980 to more than 6 percent (average for the nine major metropolitan regions) in the depressed 1981-84 period; thereafter, it declined, falling to 3.6 percent in 1986. However, even with the return of stagnation, open unemployment increased only slightly.

Inequality and Poverty

In 1992 the share of agriculture in the country's employed labor was 9.4 percent and that of industry, 16.0 percent. As a result of the swollen informal sector, employment in the services sector increased to 57.4 percent. The female participation rate continued to increase, from 27.4 percent in 1980 to 38.9 percent in 1990. In 1990 women made up 35.5 percent of the labor force compared with 15 percent in 1950. The male participation rate increased from 72.4 to 75.3 percent between 1980 and 1990.

There are two constants regarding earnings in Brazil since World War II: the very low wages of unskilled labor and the wide disparity in the wage scale. An indication of the low wage levels for unskilled labor is the minimum wage. In 1961 the monthly minimum wage averaged only US$113.30 (in 1986 dollars). The index of the average real minimum wage exhibits a clear downward trend (see table 8, Appendix). The 1991 real average monthly minimum wage was less than one-third of the already low 1961 minimum wage.

In the 1950-70 phase, the employed population went from 17.1 million people to 29.6 million, increasing at a 2.7 percent annual rate, similar to the rate of population growth. This expansion was led by the services sector, with 4.6 percent annual growth. Industrial employment also expanded significantly, with 3.9 percent annual growth. However, industrial labor expansion was quite a bit slower than the sector's growth in real product in the period (7.9 percent annually). In turn, employment in the primary sector experienced only a small increase of 1.3 percent annually, much less than the sector's growth in real product in the period (4.5 percent annually). In the 1950s and 1960s, the output elasticity (see Glossary) of employment was very small, not only for agriculture but also for industry, the economy's dynamic sector.

The 1970-80 period saw very rapid economic expansion. In the 1970s, GDP grew 8.7 percent annually; industry, 9.5 percent; and agriculture, 4.4 percent. In the same period, the employed population increased 3.9 percent annually, from 29.6 million to 43.9 million persons. This time, the expansion in total employment was led by industry, with a 6.7 percent annual growth rate. The services sector's labor force grew 5.9 percent annually. As a result of conservative modernization, agriculture's labor force experienced a small reduction, from 13.3 million persons in 1970 to 13.0 million in 1980.

As for regional inequality, in 1991 the more developed Southeast and South regions, which occupy 17.6 percent of Brazil's total territory, had 58.7 percent of the total population and generated 74.3 percent of the country's GDP (in 1985). By contrast, the poverty-stricken Northeast, which occupies 18.3 percent of the total area, had 28.5 percent of the total population and generated only 13.1 percent of Brazil's 1985 GDP. The huge North (Norte) and Center-West (Centro-Oeste) regions, which occupy 64.1 percent of Brazil's total area, had 12.8 percent of the total population and generated 12.6 percent of Brazil's 1985 GDP. The Southeast had the largest urbanization rate (88.3 percent in 1991); the Northeast had the second largest proportion of the population in rural areas (41.6 percent in 1991), slightly below that of the frontier North (43.9 percent).

Brazil's major urban areas warrant examination, given the large and growing number of urban poor. In 1991 nine Metropolitan Regions (MRs), including Bel�m, in the North; Fortaleza, Recife, and Salvador in the Northeast; Belo Horizonte, Rio de Janeiro, and S�o Paulo in the Southeast; and Curitiba and Porto Alegre in the South, had a combined population of 42.7 million people, almost one-third of Brazil's total population. The smallest MR, Bel�m in the Amazon, had 1.3 million inhabitants, and the largest, S�o Paulo, had more than 15 million inhabitants. The three largest MRs were in the Southeast. They had a combined population of 28.6 million, nearly 67 percent of the total metropolitan population and almost 20 percent of Brazil's total population. The four MRs in the North/Northeast had a combined population of 9.0 million--a large number for an underdeveloped or frontier area. The South's two MRs had a combined population of 5.0 million.

The share of agriculture in total employment fell from almost 60 percent in 1950 to 44.3 percent in 1970, that of the industrial sector increased from 14.2 percent to 17.9 percent, and that of the services sector increased from 25.9 percent to 37.8 percent. Another change in the period was the increase in the number of women in the labor force, from 13.6 to 18.5 percent. The male participation rate declined from 80.8 to 71.8 percent.

The metropolitan average household real income shows that all MRs, except for Rio de Janeiro, had increases between 1970 and 1988. In 1970 and in 1988, the average household incomes of the North-Northeast MRs were significantly lower than those of the Southeast-South. However, the gap between the two groups has declined somewhat. In 1970 the average household income of Fortaleza (the MR with the lowest average) was only 36.6 percent of that of S�o Paulo (with the highest average); in 1988 this average had increased to 53.3 percent. This does not mean that the Northeast MRs were prospering. Rather, it means that S�o Paulo, flooded with migrants, had a sharp increase in the number of households, moderating the rise in its average household income.

Organized labor, which has substantially larger average earnings, has obtained considerable gains since the late 1970s. These gains are reflected in the index of average real wage in S�o Paulo, the core of the country's modern industrial sector. The index evolved from a level of 100 in 1978 to 125.1 in 1982, declined to 112.9 in 1983, but jumped to 175.9 in prosperous 1986. After this it decreased somewhat, reaching 165.9 in 1990 and 158.4 in 1992.

Brazil lacks precise data on informal-sector employment, but there are indications of its expansion since 1980. For instance, between 1980 and 1990 the share of employees in the total employed urban labor force fell from 78.7 percent to 74.6 percent, and the share of the self-employed (many in the informal sector) rose from 17.2 percent to 19.1 percent. Furthermore, the proportion of workers with formal labor contracts declined considerably in most urban economic segments. This was certainly true in areas where the informal sector traditionally has prevailed, such as personal services, entertainment, construction, and commerce; but, it was also true in the more organized sectors, such as manufacturing.

Since World War II, the level of employment in Brazil has coincided generally with the expansion of the country's labor force. However, there have been considerable changes in the occupational structure (see fig. 7). The period from 1950 to 1970 witnessed slow growth in agricultural employment and a rapid increase in typically urban occupations, notably commerce and services but also industry (manufacturing, construction, and mining). The period from 1970 to 1980 was one of very rapid growth in employment, led by industry, resulting from a decade of marked economic expansion. The period between 1980 and 1990 saw an expansion of employment, led by segments of the services sector, despite the sluggish economy.

More about the Economy of Brazil.

As a result of the economic boom, Brazil's per capita income experienced a marked increase in the 1970s, from US$1,253 to US$2,266; in the stagnant 1980s, it declined, reaching US$2,154 in 1990. In 1970 the per capita income of the Southeast exceeded the national average by 53.2 percent, while that of the Northeast was 44.4 percent lower. This discrepancy has declined, but only marginally: in 1988 the per capita income of the Southeast was 43.6 percent higher than the national average, and that of the Northeast was 37.5 percent lower. Of Brazil's 39.1 million poor in 1990, 53.1 percent were in the Northeast and 25.4 percent were in the prosperous Southeast. In the Northeast, the majority of the poor lived in rural areas, while in the Southeast the largest portion of the poor lived in cities.

A substantial number of Brazilians are poor because Brazil has a large population, a medium-range income per capita (as compared with the United States, which is in the high range), and a high level of inequality. Estimates indicate that in 1990 almost a third of Brazil's total population, or 39.1 million persons, were poor. Approximately half of these poor lived in rural areas and half in urban areas. In relative terms, however, the proportion of the urban poor (22.5 percent) was substantially lower than that of the rural poor (50.1 percent). The rural to urban migration since 1950 markedly reduced the rural population, but it did not improve the lot of those who remained behind.

Income inequality in Brazil has a personal and a regional dimension. The highly concentrated distribution of income worsened in the 1960 to 1990 period. The Gini coefficient (see Glossary) for the country as a whole increased from 0.50 in 1960 to 0.56 in 1970, 0.59 in 1980, and 0.63 in 1990. The 1990 coefficient means that the richest 5 percent of the population received 36.6 percent of the national income, while the poorest 40 percent received only 7.2 percent. Moreover, the pattern of income distribution was similar in all of Brazil's five regions. In 1988 the South had the lowest Gini coefficient (0.58) and the Northeast had the highest (0.64). The difference is not remarkable; inequality is pervasive.

Earnings

It is interesting to observe the impact of recession and particularly inflation on the real minimum wage. The two periods of swift decline in the real minimum wage were characterized by recession and by a rapidly accelerating inflation. This was true in the 1961-65 period and especially so between 1982 and 1991. The prosperity and comparatively low inflation of the 1970s (notably during the first half of the decade) did not bring about a stronger recovery of the real value of the minimum wage only because of the repressive wage policy adopted by the military regime.

The 1990 household survey revealed that 30.8 percent (some 19.9 million persons) of the employed population earned one minimum wage or less. Even allowing for underestimations of earnings by the household surveys, the numbers living with very low wages in Brazil are indeed large.

By 1980 the share of agricultural employment had fallen to 30.1 percent, that of industry had increased to 23.9 percent, and that of the services sector, to 46.0 percent. The number of women in the labor force continued to increase, from 18.5 percent in 1970 to 27.4 percent in 1980; the male participation rate changed little, from 71.8 to 72.4 percent.

As for the disparity in the wage scale, according to the 1990 household survey, in September of that year 10.8 percent of the employed work force, or 6.5 million persons, earned one-half of a minimum wage, a monthly average of US$299; 49.2 percent of the employed work force, or 29.8 million persons, received two minimum wages or less. At the other extreme, 7.8 percent of the employed work force received more than ten minimum wages, a monthly average of US$1,941; 3.2 percent, or 1.9 million persons, earned more than twenty minimum wages, or a monthly average of US$4,000. In that year, more than 60 percent of the employed labor force earned less than the average monthly earnings of US$211.

In the 1990-92 period, the economy deteriorated further, with a 1.3 percent annual decline in GDP and 4.1 percent decline in industrial output. Agriculture grew only 1.5 percent, and the services sector, only 0.4 percent annually. The overall unemployment rate increased from 3.4 percent in 1989 to 4.3 percent in 1990, 4.2 percent in 1991, and 5.8 percent in 1992. The labor absorption by the informal sector continued to be large and highly visible.

In 1989 the proportion of the poor unemployed was 11 percent, while that of the rest of the work force was only 3 percent. The proportion of the poor employed in informal occupations was 38 percent, while that of the remaining population was 26 percent (still quite a high percentage). And, the proportion of poor children, age seven to fourteen, out of school was 14 percent, while that of the nonpoor was only 6 percent.

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