Growth, Employment and Growth, Employment and Poverty in BrazilPoverty in Brazil

Ricardo Barros

Mirela de Carvalho

Samuel Franco

Brasília, January 2005

1. A very abbreviated 1. A very abbreviated analytical frameworkanalytical framework

Basic analytical framework

Economic Shocks

Labor Demand

Wages and Employment

PovertyX X X

1a. The response of labor 1a. The response of labor demand to growth depends on demand to growth depends on

the the sourcessources of growth of growth

Economic shocks Output effectOutput constant,

labor demandTotal effect

Decline in the price of inputs complementary to labor positive positive positive

Improvements in the terms of trade positive neutral positive

Increase in TFP positive negative positive

Decline in the price of inputs substitutes for labor positive negative undetermined

How economic shocks would impact on labor demand

1b. The response of employment 1b. The response of employment and labor income to changes in and labor income to changes in

labor demand depends on:labor demand depends on: (i) the degree of integration of (i) the degree of integration of

labor markets and labor markets and (ii) the broadness of the changes (ii) the broadness of the changes

in labor demandin labor demand

Idiosyncratic Aggregated

Segmented

Integrated

How labor demand shifts translate into changes in labor market outcomes

Labor market characteristics

Nature of demand shifts

1c. Wage flexibility could be an 1c. Wage flexibility could be an effective instrument to reduce effective instrument to reduce

inequality and povertyinequality and poverty

Labor market flexibility

Employment level

Labor income

Poverty reduction

rigid smaller greater smaller

flexible greater smaller greater

How labor demand shifts translate into changes in labor market outcomes and

poverty

Baseline (2003) 422 34,1 14,5

After unemployment is eliminated 422 32,0 12,8

Impact on poverty (%) ...... 6,2 11,8

Impact on poverty of eliminating unemployment in Brazil,

holding constant total earnings

Meanincome

PovertyExtreme poverty

Alternatives

Relationship between employment and GDP

0,00

1,00

2,00

3,00

4,00

5,00

6,00

7,00

8,00

9,00

10,00

0 20 40 60 80 100 120 140 160 180 200

GDP (R$ billions/year)

emp

loym

ent

(mill

ion

)

Espírito Santo

Ceará Pernambuco

Indicators Ceará Espírito Santo

Average earnings (1000 R$ per year) 3,5 6,3

Employment (millions) 3,3 1,5

Total earnings (in billions of R$ per year) 11,6 9,6

GDP* (in billions of R$ per year) 23,0 22,0

Total earnings as a share of GDP (%) 50,6 43,7

Employment, earnings and production level

2. Agriculture development 2. Agriculture development and rural poverty in Brazil over and rural poverty in Brazil over

the last decadethe last decade

Qualificação dos trabalhadores

agrícolas

Produção agrícola

Trabalho agrícola

Pobreza rural

Integração dos mercados agrícola

e não agrícola

Previdência rural

Qualidade dos postos de trabalho

Atividades não agrícolas pela

população ruralDemografiaPreços agrícolas

Mudanças tecnológicas

Labor force qualification

Agriculture production

AgricultureLabor market

Rural poverty

Agro and non agrolabor market integration

Social security

Rural poverty determinants

Job quality

Non agro activitiesfor rural families

DemographicsAgricultural prices

Technological progress

Evolution of rural povertyWorkers in agriculture

50

51

52

53

54

55

56

57

58

59

60

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

year

Po

vert

y h

ead

cou

nt

(%)

7.6

Evolution of the terms of trade in agriculture

95

105

115

125

135

145

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

year

Rel

ati

ve

pri

ces

(19

90=

100)

13%

Variation(1995-1985)

Production level 16%

Inputs -8%

Total factor productivity 26%

Growth in productivity: 1985-1995

Evolution of agriculture production

90

100

110

120

130

140

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

year

Pro

du

ctio

n q

uan

tum

(1

990=

100)

37%

Evolution of labor force and earnings in agricultureover the last decade

12.0

12.5

13.0

13.5

14.0

14.5

15.0

15.5

16.0

16.5

17.0

17.5

18.0

18.5

19.0

1992 1993 1995 1996 1997 1998 1999 2001

year

Ag

ric

ult

ure

la

bo

r fo

rce

(mil

lio

ns

)

140

145

150

155

160

165

170

175

180

185

190

195

200

Av

era

ge

ea

rnin

gs

in

ag

ric

ult

ure

(R$

/mo

nth

)

Labor force Earnings in agriculture

11%

-15%

fff rdy .

Expressions for the household per capita income

fy household per capita income

fd proportion of adults

fr average earnings among adults

ffff otdy

fy household per capita income

fd proportion of adults

ft average labor earnings among adults

fo average non labor income among adults

Expressions for the household per capita income

Expressions for the household per capita income

ffnaafff ottdy ,

fy household per capita income

fd proportion of adults

aft average agriculture labor earnings among adults

fnat , average non agriculture labor earnings among adults-

fo average non labor income among adults

Expressions for the household per capita income

ffnaffff otspdy ,.

fy household per capita income

fd proportion of adults

fp proportion of adults working in agriculture

fs average labor earnings among agriculture workers

fnat , average non agriculture labor earnings among adults-

fo average non labor income among adults

ffnaffff otspdy ,** .

fssf sFFs ,01

,1* ˆˆ

Household per capita income that would prevail in 1992, if the distribution of

labor earnings in agriculture were that prevailing in 2001

Impact on poverty of changes in labor earningsper agriculture worker

50

52

54

56

58

60

1992 1992 if labor earningsper agriculture worker

were that prevailing in 2001

2001

19%

Impact of changes inlabor earnings per agriculture worker

Household per capita income that would prevail in 1992, if the distribution of

agriculture labor earnings per adult were that prevailing in 2001

ffnaafff ottdy ,***

afttaf tFFtaa ,0

1,1

* ˆˆ

Impact on poverty of changes in the proportionof adults working in agriculture

50

52

54

56

58

60

1992 1992 if laborearnings per

agriculture workerwere that prevailing

in 2001

1992 if agriculturelabor earnings per

adult were thatprevailing in 2001

2001

Household per capita income that would prevail in 1992, if the distribution of labor earnings per adult were that

prevailing in 2001

ffff otdy **** .

ftotf tFFt ,1

,1* ˆˆ

Impact on poverty of changes in non agriculturelabor earnings per adult

50

52

54

56

58

60

1992 2001

2%

Impact of changesin non agriculture labor

earnings per adult

1992 if laborearnings per

were that prevailing

in 2001

agriculture worker

1992 if agriculturelabor earnings

per adult werethat prevailing

in 2001

1992 iflabor earnings

per adult werethat prevailing

in 2001

Household per capita income that would prevail in 1992, if the distribution of

income per adult were that prevailing in 2001

***** . fff rdy

frorf rFFr ,1

,1* ˆˆ

Impact on poverty of demographic changesand the impact of changes in non labor earnings

50

52

54

56

58

60

73%

Impact of changes innon labor income

21%

Impact of demographicchanges

1992 1992 if laborearnings per

were that prevailing in 2001

agriculture worker

1992 if agriculturelabor earnings

per adult werethat prevailing

in 2001

1992 iflabor earnings

per adult werethat prevailing

in 2001

20011992 ifincome per

adult werethat prevailing

in 2001

ConclusionConclusion

An important increase in non labor income of rural families was the main factor explaining the sharp reduction in rural poverty over the

last decade in Brazil.

3. Economic growth and 3. Economic growth and poverty in Brazil over the last poverty in Brazil over the last

decadedecade

Year Household per capita income

(R$ per month)

Poverty headcount (%)

Extreme poverty headcount (%)

Gini Coefficient

1992 342 40.8 19.3 0.583

2003 422 34.1 14.5 0.585

Variation 24 6.6 4.8 -0.001

Evolution of the income distribution in Brazil over the last decade

E x p r e s s i o n s f o r t h e h o u s e h o l d p e r c a p i t a i n c o m e

fff rdy .

y f h o u s e h o l d p e r c a p i t a i n c o m e

d f p r o p o r t i o n o f a d u l t s

r f a v e r a g e i n c o m e p e r a d u l t

E x p r e s s i o n s f o r t h e h o u s e h o l d p e r c a p i t a i n c o m e

ffff otdy .

y f h o u s e h o l d p e r c a p i t a i n c o m e

d f p r o p o r t i o n o f a d u l t s

t f a v e r a g e l a b o r i n c o m e p e r a d u l t

o f a v e r a g e n o n - l a b o r i n c o m e p e r a d u l t

E x p r e s s i o n s f o r t h e h o u s e h o l d p e r c a p i t a i n c o m e

fffff ospdy ..

y f h o u s e h o l d p e r c a p i t a i n c o m e

d f p r o p o r t i o n o f a d u l t s

p f p r o p o r t i o n o f a d u l t s w h o a r e w o r k i n g

s f a v e r a g e l a b o r i n c o m e p e r w o r k e r

o f a v e r a g e n o n - l a b o r i n c o m e p e r a d u l t

E x p r e s s i o n s f o r t h e h o u s e h o l d p e r c a p i t a i n c o m e

ffffff oqpdy ...

y f h o u s e h o l d p e r c a p i t a i n c o m e

d f p r o p o r t i o n o f a d u l t s

p f p r o p o r t i o n o f a d u l t s w h o a r e w o r k i n g

f a v e r a g e q u a l i t y o f j o b s

q f a v e r a g e q u a l i f i c a t i o n o f w o r k e r

o f a v e r a g e n o n - l a b o r i n c o m e p e r a d u l t

H o u s e h o l d p e r c a p i t a i n c o m e t h a t w o u l d p r e v a i l i n 1 9 9 2 , i f t h e d i s t r i b u t i o n o f w o r k e r s `

q u a l i f i c a t i o n w e r e t h a t p r e v a i l i n g i n 2 0 0 3

ffffff oqpdy ** ...

fqqf qFFq ,01

,1* ˆˆ

Impact on poverty of changes in the qualification of the labor force

30

31

32

33

34

35

36

37

38

39

40

41

42

1992 1992 if the qualification of workers were atthe 2003 level

2003

hea

dco

un

t (%

)

Impact of changes in the qualification of

workers85%

H o u s e h o l d p e r c a p i t a i n c o m e t h a t w o u l d p r e v a i l i n 1 9 9 2 , i f t h e d i s t r i b u t i o n o f i n c o m e

p e r w o r k e r w e r e t h a t p r e v a i l i n g i n 2 0 0 3

fffff ospdy ** ..

fssf sFFs ,01

,1* ˆˆ

Impact on poverty of changes in job quality

30

31

32

33

34

35

36

37

38

39

40

41

42

1992 1992 if the qualification ofworkers were at the 2003

level

1992 if the labor income perworkers were at the 2003

level

2003

hea

dco

un

t (%

) 74%Impact of changes in

job quality

H o u s e h o l d p e r c a p i t a i n c o m e t h a t w o u l d p r e v a i l i n 1 9 9 2 , i f t h e d i s t r i b u t i o n o f l a b o r

i n c o m e p e r a d u l t w e r e t h a t p r e v a i l i n g i n 2 0 0 3

ffff otdy ** .

fttf tFFt ,01

,1* ˆˆ

Impact on poverty of changes in the level of employment

30

31

32

33

34

35

36

37

38

39

40

41

42

43

1992 1992 if the qualificationof workers were at the

2003 level

1992 if the labor incomeper workers were at the

2003 level

1992 if the labor incomeper adult were at the

2003 level

2003

hea

dco

un

t (%

)

26%Impact of changes in employment

H o u s e h o l d p e r c a p i t a i n c o m e t h a t w o u l d p r e v a i l i n 1 9 9 2 , i f t h e d i s t r i b u t i o n o f i n c o m e

p e r a d u l t w e r e t h a t p r e v a i l i n g i n 2 0 0 3

** . fff rdy

frrf rFFr ,01

,1* ˆˆ

Impact on poverty of changes in non-labor income and demographics

30

31

32

33

34

35

36

37

38

39

40

41

42

43

44

45

1992 1992 if thequalification of

workers were at the2003 level

1992 if the laborincome per workers

were at the 2003level

1992 if the laborincome per adultwere at the 2003

level

1992 if the incomeper adult were at the

2003 level

2003

hea

dco

un

t (%

)

Impact of changes in non-labor

income 73%

Impact of demographic

changes 42%

Impact on poverty of changes in the qualification of workers, job quality, employment, non-labor income and demographics

30

31

32

33

34

35

36

37

38

39

40

41

42

43

44

45

1992 1992 if thequalification of

workers were at the2003 level

1992 if the laborincome per workers

were at the 2003level

1992 if the laborincome per adultwere at the 2003

level

1992 if the incomeper adult were at the

2003 level

2003

he

ad

co

un

t (%

)

Impact of changes in non-labor

income 73%

Impact of demographic

changes 42%

85%

Impact of changes in the qualification of

workers26%

Impact of changes in

employment

74%Impact of

changes in job quality

0%

10%

20%

30%

40%

50%

60%

70%

3,0 3,5 4,0 4,5 5,0 5,5 6,0 6,5 7,0 7,5 8,0 8,5 9,0 9,5 10,0 10,5 11,0 11,5 12,0

Mean years of schooling

Deg

ree

of p

over

ty

Vidigal

Vigário Geral

Relation between poverty and education in Rio de Janeiro neighborhoods - 1991

Modelos

Ingreso totalfamiliar

(mil millones de R$

por año)

Mejora en el ingreso familiar (mil

millonesR$ por año)

Brecha en el ingreso de las familias pobres

(mil millones

R$ por año)

Mejora en el Ingreso que

beneficia a las familias pobres (mil millones R$

por año)

% de la mejora del ingreso que beneficia a las familas pobres

Reducciónde la brecha de

ingresos de las familias pobres (%)

Línea de base (2002) 657,6 --- 42,8 --- --- ---

Empleados formales que ganen cerca del salario mínimo 658,2 0,7 42,5 0,3 42 0,7

Beneficiarios de la seguridad social con beneficios cercanos al salario mínimo 660,0 2,4 42,2 0,6 24 1,4

Empleados formalesy beneficiariosde la seguridad social conbeneficios cercanos al salario mínimo

660,7 3,1 41,9 0,9 28 2,1

658,6 0,9 41,9 0,9 100 2,1

El impacto de cambios en el salario mínimo y de los benficios de la Bolsa Familia en el nivel de pobreza

Impacto en el ingreso familiar de unaumento del 10% en el salario mínimo:

Impacto al aumentar el beneficio básico deBolsa Família en R$17,5 por familia por mes

Indicators Poor Extremelypoor

Poverty rate among formal employeeswith earnings near the minimum wage 31 7

Percentage of poor families with at leastone formal worker with earnings near theminimum wage

14 9

Percentage of poor families without anyformal worker with earnings near theminimum wage

86 91

Minimum wage and poverty in Brazil

Distribution of workers according to the percentiles of the distribution offamily per capita income

0,0

0,5

1,0

1,5

2,0

2,5

3,0

0 10 20 30 40 50 60 70 80 90 100

Percentiles of the distribution

Pe

rce

nta

ge

of

wo

rke

rs b

y p

erc

en

tile

Formal employees(1 a 1.25 SM)

Self-employed worksin Maranhão