In Brazil, the number of individuals who are actively looking for jobs in relation to the percentage of people in the labor force indicates the unemployment rate. The data is usually considered in the six Metropolitan areas, including Salvador, Recife, Belo Horizonte, São Paulo, Rio de Janeiro, and Porto Alegre. According to the Central Intelligence Agency (2014), the unemployment rate was estimated at 4.8 % and 5.4 % in 2013 and 2014 consecutively. In fact, this is not an appealing trend considering that the country is still in the process of economic development.
Before the economic recession that took place in 2008 and 2009, there was a significant progress in the Brazilian labor market as compared to the period between 1990 and 2002 (IMF, 2010). However, after the depression, the unemployment increased in the entire country, especially in the major metropolises. In addition, the industrial employment was at its lowest and the creation of jobs in the service sector was negligible. In fact, the informality continued to increase and the average income from the labor market was characterized by a sequence of decline.
Source: IBGE – Nationwide Home-based Survey Representative (PNAD).
Unemployment in Brazil peaked in 2003 and recorded 13% rise. However, the trend declined sharply until 2008 where there were some upticks brought by the recession. The percentages of workers in the informal sector decreased from 22.5% in 2003 to 13.3% in 2014. In these aspects, the shift is crucial, especially towards the formal sector employment because the employees benefit from various protections, including paid annual leave, pensions, regulation of working hours, disability, and regulation of working hours, as well as access to credit cards. Between 2003 and 2014, the minimum wage increased by 76.2 %, a situation that was contributed by unemployment and inequality in the labor market (Ernst, 2008). In addition, the unemployment cover for insurance escalated to 99% between 2000 and 2012.
Source: IBGE – Nationwide Home-based Survey Representative (PNAD).
In September 2008, the economic growth was around 4.4% in real terms. In fact, before 2008, the employment levels fell from 9% in 2004 to 7.7% in 2008. The workers’ percentages, especially those who were contributing for the social security system recorded its highest by surpassing 50% in 2007 and, consequently reaching 52.1% in 2008. After the crisis, the economic growth stagnated and later decreased to 1.3% in 2008. In the same period, there was a loss of formal jobs of around 634,000 compared to the net gain of around 10, 400, which was recorded in 2007 (Ernst, 2008). Therefore, after the depression, the rate of unemployment in the major metropolitan areas increased sharply to around 8.6% in 2008 from 7.3% in 2007. This was an indication that the economic growth was stagnating
Relationship between Unemployment and the Economy of Brazil
The unemployment levels and the economy of Brazil are connected because as indicated by the data, it is evident that no growth can be achieved without creation of jobs in both the public and private sector. The survey indicates that if the levels of unemployment continue to rise, the inflationary pressures will persist, a situation that will necessitate the adjustment of economy in terms of supply and demand. Those pressures increase the production of goods to exceed or meet the consumer demand. On the other hand, they may increase the prices when the supply is low. Therefore, high levels of unemployment will force the companies to reduce their pay when hiring and retaining their workers. When the levels persist, the salaries decreases and the companies try to maximize their profits by charging high prices for everything they sell. In essence, the slow growth for Brazilian economy indicates that in future the jobs will continue to be fewer, a situation that will deteriorate the levels of joblessness.
The high unemployment rate continues to pressurize the Brazilian economy. The Central Bank has raised the rates amid the stagnant economy, while the swap rates have also been falling in the period preceding the recession. The situation is getting worse and the inflation is increasing making the government regulate prices for basic needs, including the transport and electricity. In this aspect, the government has tightened fiscal policy after the huge budget deficit that was posted in 2014. The Central Bank is increasing the borrowing costs to reduce the consumer prices, an initiative that jeopardizes the economic status. Therefore, the country cannot focus on improving the rates of employment since the economy do not wholly support domestic investment.
The unemployment rates were not strong before the recession because the labor force was not contracting at high levels. However, the current situation is getting worse since the unemployment rates are astronomically high (Marshalle, 2006). In January 2017, the swap rates decreased considerably by nine basis points. Finally, it is expected that if the high level of unemployment is not solved, the dependency rate of Brazilian citizens will increase steadily.
Trends in the Data Sets
The trends of the data presented indicate that Brazil has been experiencing high level of unemployment rate in the last decade, especially after 2008 recession. There is no likelihood of change of this situation because there are few policy framework put in place to reduce the levels of unemployment. In fact, the government is borrowing to support part of it development projects (IMF, 2010). As Okun’s Law indicates, there is a statistical relationship between unemployment rate and the economy of a country. The law explains the value of gross domestic product lost when the country’s unemployment rate is above the natural rates. Therefore, the output of the Brazilian economy will depend on the quantity of labor used in the process of production. In the labor market, there is a big relationship between the employment and output. The data shows that the labor force will be equivalent to total employment minus the unemployed population. In essence, there is an inverse relationship between the unemployment and the level of output in relation to labor force.
In the data set, it is clear that although the economy of Brazil is affected by high levels of unemployment, still there is hope. The thumb rule elucidates that the observed relationship between economic growth and unemployment rates can be altered to yield the required outcomes. To hold the level of unemployment at manageable levels, the real growth of GDP is required and an increase of labor force. In essence, the level of Brazilian economy must grow at a rate higher than its potential to curb the persistent level of unemployment.
Finally, the Brazilian economy can be improved through the application of Okun’s accepted version, which state that a 1% decline rate in unemployment will be accompanied by approximately 2% increase in the level of GDP (Marshalle, 2006). In this aspect, the economic growth must be faster than the potential GDP growth of Brazil.