Brazil’s Formal Job Creation Slows as Election Campaign Picks Up

Maria Eloisa Capurro
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(Bloomberg) -- Brazil created fewer jobs than expected in July, marking the first slowdown in new posts in four months as a prevalence of low-paying positions weighs on the labor market outlook ahead of October’s election.

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The country created 218,902 formal posts, below most analysts forecasts in a Bloomberg survey that had a median estimate of 258,650, according to government data published on Monday. While the figures support odds of a new drop in unemployment, there are signs that the job market is cooling.

“We see the labor market stabilizing,” in the second half of the year with job creation steady at 85,000 to 100,000 new posts per month, said Gabriel Couto, an economist at Santander in Brazil. “Even if job creation is better, the median income is lower.”

Brazil has so far remained resilient to an aggressive cycle of interest rate hikes, with central bank President Roberto Campos Neto describing the improving labor market “the biggest surprise” yet. Still, lower entry-level wages and the prevalence of less-qualified posts are tempering job optimism among many analysts and workers. More broadly, the state of the economy represents a top issue ahead of October’s presidential election.

Informal workers have increased in many segments since 2014, according to data from the national statistics institute. Meanwhile, low-wages sectors like construction, services and small businesses have driven much of the recent job creation.

Indeed, services contributed the most to July’s formal job gains, with 81,873 posts, followed by industrial production, with 50,503 positions, according to the Labor Ministry.

Salaries

Helped by gasoline tax cuts, annual inflation eased back to single digits in mid-August for the first time in a year, to 9.6%. But salaries aren’t keeping up, as almost 46% of wage negotiations this year have ended with raises that trailed cost of living increases, according to data from the Institute of Economic Research Foundation, a Brazilian think tank.

“Real wages haven’t made up for what was lost during the pandemic,” said economist Rodolfo Margato at XP Inc. In June, workers’ average median income was still 6.5% below levels seen in February, 2020, according his calculations based on a national household sample survey.

Data for entry-level posts and dismissals also point to the replacement of people in high-paid positions for workers with lower wages, Margato said. He sees formal job creation moderating in the months ahead.

Analysts at BNP Paribas see unemployment near 8%, but they caution about the strength of the recovery if pay hikes don’t catch up to consumer price increases. “Our concern centers on salaries, which are not bouncing back as fast the number of people employed”, said economist Laiz Carvalho.

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