Labor Market Worsened Before Virus; Unemployment Could Reach 16 Percent

RIO DE JANEIRO, BRAZIL – The National Household Sample Survey (PNAD), released on Tuesday, March 31st, by the Brazilian Institute of Geography and Statistics (IBGE), shows that the labor market was showing signs of deterioration even before the spread of the new coronavirus in Brazil, assess analysts.

If the scenario was no longer encouraging, it only tends to worsen with the pandemic.

The unemployment rate, which stood at 11.6 percent in the quarter ended February, a figure released this Tuesday, is expected to end 2020 at an average of 13 percent after rising to 16 percent in the coming months.

According to Gustavo Ribeiro, ASA Bank’s chief economist, one of the worrying factors is the slowdown in the pace of improvement. He points out that it is jobs without a signed worker’s record book that drive job creation – an indication of lower quality in the labor market – and highlights that the wage bill dropped again, from R$218.5 (US$54.63) billion in January to R$217.6 billion last month.

“In short, it’s fresh data, showing a worsening even when you look through the rearview mirror,” he says.

4E Consulting also noted other worrisome data. The month of February recorded the first drop in employment with a signed worker’s record book since September 2019, with a 0.06 percent decrease in seasonally adjusted values, according to the institution’s calculations.

For the coming months, unemployment is expected to “increase significantly,” due to the interruption of economic activity caused by the coronavirus pandemic, believes 4E, which estimates the unemployment rate will end the year at 13 percent.

However, the impacts of the coronavirus on the labor market should only be included in PNAD data for the month of May, says economist Lucas Godoi of GO Associates. He believes that in May, the progress seen in January and February will have already been eliminated. The consultancy projects an increase in the average unemployment rate for the year to 13.8 percent in 2020, from 11.9 percent in 2019, with a strong downturn in informal employment.

“The government and the Central Bank are going strong to maintain (formal) work in small and medium-sized companies. The informal sector, on the other hand, is being provided with measures that ensure income, not work, and thus this reduction should take place,” says the economist, who believes that the rate of informality – which was 40.6 percent in February – should drop rapidly, due to social distancing measures to prevent the spread of the virus.

In a report released to clients, the Pantheon Consulting firm, in turn, states that unemployment will increase significantly in the coming months and the rate should reach 16 percent in the second quarter. However, it says this projection could change in any direction since the pandemic is still in its early stages in Brazil.

Along with the increase in unemployment, underemployment and discouragement are also expected to grow, expects economist Thiago Xavier, of Tendências Consultancy. However, discouragement (when people give up looking for a job) should see limited progress, since the poorest do not possess a resource reserve and at some point will have to return to the labor market. He believes that unemployment should quickly increase, but when it starts to drop, it will be slower.

“Basically, we must extend this transition flow between unemployment, discouragement, and underemployment. This must be a vicious cycle for many people and, regardless of category, it’s a picture of deterioration, it’s a condition of vulnerability,” says the economist, who estimates average unemployment at 13 percent at the end of the year.

Source: Infomoney