Economic Concerns in Brazil

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Table of Contents

Introduction
Brazilian economy: An overview
The Brazilian Labor Market during the 2008 Financial Crisis
Labor policies introduced to bolster the welfare of workers
Conclusion
References

Introduction

Most of the developing countries were affected by the 2008 financial crisis, including Brazil. These countries experienced high unemployment rates while production and consumption levels decreased remarkably. The key areas affected by the financial crisis were: unemployment levels; average income; and social welfare programs (Proni, 2010, p.1). This report will therefore focus on the impact of high unemployment rates on Brazil’s economy occasioned by the financial crisis that occurred in 2008.

Brazilian economy: An overview

The Brazilian economy has recorded protracted economic growth since 2000 after several decades of poor performances. For example, the country’s gross domestic product (GDP) per capita grew at an average rate of 1.62 % between 2000 and 2007. This was a marked improvement when compared with previous period (GDP per capita grew 0.82% from 1980 to 1989 and 0.27 between 1990 and 1999 workers (Rafael et al., 2007, p.4).

As a matter of fact, Brazil is one of the key players in global economic performance. This is also manifested in world trade negotiations where Brazil plays a major role. The country has also attempted to create employment opportunities and raise average incomes of its workers.

For instance, the country recorded a sustained decline in unemployment rates since 2003. Also, the average annual wage rate increased at 3.7% between 2005 and 2007. The population segment living in absolute poverty decreased from 12.8% in 1999 to about 7.9% in 2006. These achievements were attributed to the rise in average earnings and a robust social welfare program that bolstered earnings among low-income workers (Rafael et al, 2007, p.5).

The Brazilian Labor Market during the 2008 Financial Crisis

It is vital to note that, unemployment levels are measured on monthly basis. This exercise is only done in the main metropolitan areas (see appendix). Although high unemployment rate was one of the key concerns for the Lula administration, the country has introduced several remedial measures to solve the problem.

For example, in 2003, the unemployment rate in Brazil’s metropolitan areas was over 11.9%. However, in the following years the country recorded positive economic growth. Consequently, the unemployment rates began to drop. It is also important to note the apparent dissimilarities among metropolitan areas in Brazil: in Recife and Salvador (metropolitan areas located in northeast of Brazil), a considerable segment of the workers are affected by unemployment.

On the other hand, a small portion of the labor force in Curitiba and Porto Alegre (located in southeast) face a similar experience. Sao Paulo, being the most industrialized and populated region, registered the highest drop of unemployment level (from 14% to 8.3%) between 2003 and 2009 (Proni, 2010, p.10).

There is no doubt that the 2008 financial meltdown created havoc to the liberal trajectory of the Brazilian economy: a robust deceleration in the last four months of 2008 and a slump in the first three months of 2009 occurred. As prospects for industrial employments were severely constrained by low levels of economic activities, economic experts predicted that unemployment would recoil to the 2003 levels.

Nonetheless, the brunt of the financial crisis on the labor market was much less than previously anticipated. In fact, the unemployment rates attributed to the 2008 crisis was moderate between January and March 2009. In all major metropolitan areas, the unemployment levels rose from 6.7% in December 2008 to about 8.9% in March 2009 (Proni, 2010, p.10).

Prior to the onset of the 2008 global financial crisis, Brazil had recorded a robust economic growth that averaged about 4.4% per year between 2004 and 2007 and approximately 6.3% between January and September 2008.

In addition, the formal employment sector recorded a marked improvement in wage rates and employment opportunities. Unemployment rate reduced from about 9.1% in 2004 to 7.6% in 2008. Moreover, the number of employees that contributed on regular basis to the social security program was over 50% in 2007 (International Labor Organization, 2010, p.31).

Nonetheless, the crisis stalled economic growth and had an instant and severe impact on unemployment. For the example, the year-over-year GDP growth rate between October and December 2008 dropped to 1.2% resulting to a net loss of over 633, 900 formal jobs.

This can be compared to a net gain of over 10,300 formal jobs recorded between October and December 2007. As a result of the global crisis, the unemployment level in the major metropolitan regions rose from 7.2% (in the fourth quarter of 2008) to 8.5%% in the first and second quarters of 2009.

Nevertheless, between July and September 2009, the economy began to show signs of improvements. At the same time, unemployment levels in all major metropolitan regions regressed to the pre-crisis levels. In addition, over 1.1 million formal jobs were created in the industrial sector (the most affected sector by the crisis) during the first three quarters of 2009. This represented a 3.5% increment in employment stock when compared with the 2008 statistics (International Labor Organization, 2010, p.31).

Labor policies introduced to bolster the welfare of workers

Brazil has, in recent years, made remarkable progress in creating labor market policies to help the displaced employees (Caldentey & Matías, 2008, p.12). For example, the government introduced unemployment insurance to provide assistance to employees in the formal sector. The program grants remunerations for a period of three to five months to qualified employees who adhere to the minimum contribution obligations.

Since the rate of turnover is high in the Brazilian labor sector, approximately 65% of the employees in the formal sector qualify for this program. Nonetheless, the number of beneficiaries is still high. For example, in 2003, over 5.2 million employees were granted an average benefit of R$388 which was approximately equivalent to 1.35 times the minimum income. In addition, the government initiated the Public Employment Service in 1975.

This program helped unemployed workers by offering them information on the labor market and assisted in the creation and improvement of labor market strategies. For example, the sharp rise in unemployment levels in 1990s led to the establishment of extra training programs (Polaski et al., 2009, p.9).

The government also introduced training programs to help unemployed workers improve their skills. For example, the National Plan for Professional Formation (PLANFOR) was started in 1995 to bolster labor productivity and train about 20% of the nation’s economically active populace.

PLANFOR was implemented via state agencies and welfare organizations. As a result, over 10 million employees were trained between 1991 and 2000. Nonetheless, most of the courses taught were incompatible with the PLANFOR guidelines. Consequently, in 2003, the National Qualification Plan (PNQ) replaced the PLANFOR program. PNQ developed relevant educational content that would help unemployed workers gain useful skills (Polaski et al., 2009, p.9).

Microcredit programs were also established. For example, in 1994, the government introduced the Program for the Creation of employment and Income (PROGER). The main aim of this program was to extend credit to cooperatives, micro-enterprises and other small-scale enterprises in the informal sector.

The main goal of PROGER was to create employment opportunities by lending money to these informal ventures that had limited access to credit facilities. Although the program initially aimed to help workers in urban areas, it was later expanded to include workers in the rural regions.

As a result, in 2006, approximately 2.7 million loans were granted through different programs with an average loan of about R$8, 900. Cash transfer programs were also established. In spite of the fact that these programs did not fall under labor market policies, the Bolsa Familia and conditional cash transfer program provided a safe haven for employees from underprivileged families.

The program was started in 2003 when the existing cash transfer programs were merged. Those families with lower per capita income (below R$ 120 per month) were given benefits, as long as they fulfilled certain conditions. These requirements included: immunizations; school attendance; and prenatal and postnatal care. Consequently, over 10 million households were granted benefits in 2006 (Polaski et al., 2009, p.9).

Conclusion

There is no doubt that many workers in developing countries lost their jobs as a result of the 2008 financial crisis. Although the Brazilian labor market was somehow affected, the present data suggests that fewer people lost their jobs. In fact, the country’s unemployment rate decreased during and after the financial crisis. This could be attributed to a number of labor market policies that the government introduced to cushion workers from unexpected fluctuations in the business cycles.

References

Caldentey, E., & Matías, V. (2008). Back to the Future: Latin America’s Current Development Strategy. New Delhi: International Development Economics Associates.

International Labor Organization. (2010). Global Employment Trends. Geneva: International Labour Office.

Polaski, S., Filho, J., Berg, J., McDonald, S., Thierfielder, K., Willenbockel, D., & et al. (2009). Brazil in the Global Economy: Measuring the Gains from Trade. Geneva: International Labour Office.

Proni, M. (2010). An Economic Analysis of Unemployment in Brazil. Web.

Rafael, G., Fabio, V., Marcelo, M., & Eduardo, Z. (2007). Conditional Cash Transfers in Brazil, Chile, and Mexico: Impacts upon Inequality. Brasília: International Poverty Center.

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