BRASILIA (ILO News) – A new report by the International Labour Organization (ILO) says Brazil’s innovative income-led strategy led to a faster than expected recovery from the financial crisis, with employment creation returning to positive territory as early as February 2009 – even before economic growth resumed.
What’s more, the report says carefully conceived employment and social policies, which were implemented in parallel with supporting macroeconomic policies, meant the recession lasted only two quarters.
The study – titled “Brazil: An innovative income-led strategy” – shows Brazil created over 3 million formal jobs over the past two years and reached an economic growth of more than 7 per cent in 2010, thus returning to pre-crisis levels. Most importantly, economic and employment growth have not been achieved at the expense of equity. Quite the contrary: informality and income inequality have declined in spite of the crisis.
According to the study, published by the International Institute for Labour Studies (IILS) and undertaken in conjunction with the ILO office in Brasilia, Brazil’s success was due to its favourable pre-crisis economic condition, a quick job-centred response, and the right mix between social, labour and macroeconomic policies.
“Brazil was not immune to the effects of the financial and economic crisis, but it has fared reasonably well compared to many countries – even within Latin America – in terms of economic and labour market performance”, said IILS Director Raymond Torres. “The Brazilian experience shows that social inclusion and economic growth are compatible goals, as long as the right types of policies are put in place”.
The report says Brazil had done its homework following the 1999 crisis. In particular, it introduced a new macroeconomic regime that focused on reducing external vulnerabilities and building fiscal surpluses. It also substantially increased the minimum wage and expanded the coverage of social assistance.
Once the crisis struck, destroying nearly 700,000 formal jobs in November and December 2008 alone, the government was able to quickly enact a number of countercyclical measures and enhance existing social protection schemes – both made possible by the improved fiscal condition.
These measures included restoring credit to individuals and businesses; stimulating domestic demand in employment-intensive sectors, such as construction and car manufacturing; protecting the most vulnerable through increased access to social protection (the extension of the Bolsa Familia programme and insurance benefits); and ensuring that supply responded to demand incentives, for example through the introduction of a special line of credit for SMEs.
But Brazil’s success can also be explained by the government’s ability to balance employment and social policies on the one hand and macroeconomic policies and economic growth on the other. Indeed, the Government ensured that the business climate remained robust and was in a position to respond to increased demand. In this way, policies supported the interaction of supply and demand – which had important employment effects.
For example, the reduction in the industrial production tax for vehicles is estimated to have helped save between 50,000 and 60,000 jobs in this crucial industry, while the decision to enhance social transfers led to an injection of some 30 billion dollars into the economy and created (or saved) approximately 1.3 million jobs.
Brazil also managed to keep a lid on the increases in informal employment, which were short-lived and have continued their downward trend over the course of the crisis. The report shows that within the six major metropolitan areas, the number of workers without a contract fell by approximately 280,000 (-6.5 per cent) between August 2008 and August 2010.
“At 1.2 per cent of GDP, Brazil’s stimulus package was one of the lowest among G20 countries”, said Ms Abramo, Director of the ILO office in Brasilia. “It was effective for two reasons: because the government realized that protecting and creating employment was as important as economic growth, and because key measures were reached through social dialogue. Both these lessons are critical in times of crises as well as economic recovery.”
Despite its good marks, there are areas for improvement as well as a number of challenges ahead for Brazil, the report says: “Looking ahead, more attention and resources should be devoted to labour market intermediation and job training – two areas that received no additional resources during the current crisis”. This could be complemented by continuing to integrate employment and social objectives, and further improving productive investment, the tax system and the management of capital flows.
The report adds that despite the substantial progress made over the past couple of decades, poverty and inequality in Brazil remain high by international standards. “Promoting the creation of more formal jobs should help to improve social protection coverage and thus contribute to reducing the incidence of income inequality and poverty”, it says.
The report on Brazil is one of the first in a series of Studies on Growth with Equity undertaken by the International Institute for Labour Studies. Two other studies are now available – Indonesia and Germany – as well as synthesis paper. Two more – Spain and Tunisia – are in preparation.
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