Labor market dynamics and the gaps in social protection: some challenges for the Brazilian welfare system

Brazilian economy and the labor market dynamics

Since the early 20th century, Brazil’s social protection has benefited well-established workers with a formal registry. However, the democratic transition of the 1980s changed this model by incorporating employment and assistance policies into a new social pact.

In the following decades, Brazil’s welfare regime has become increasingly dualistic (Solano, 2007; Barrientos, 2019): poor families are protected by non-contributory policies, which are regulated by poverty thresholds, whereas wage workers are eligible for contributory policies, such as compensation funds and unemployment insurance. This dualistic system has failed to provide a comprehensive safety net against economic risks. The high levels of labor informality and poverty, coupled with the limitations of both employment policies and assistance programs, means that many people in Brazil do not have a stable source of income.

Figure 1 presents the evolution in the number of unemployed, inactive, and informal workers[1] between 2012 and 2022. After experiencing low economic growth, Brazil faced an economic recession in the mid-2010s. Consequently, the number of unemployed workers surged by 82.8% in 2017 compared to 2014. This number slightly declined until 2019 due to an economic recovery, a trend accompanied by an increase in the number of informal workers.

Next, the COVID-19 pandemic induced both supply and demand shocks (Brinca, Duarte and Castro, 2020), resulting in a fall in employment levels, with informal workers being particularly affected. Both unemployment and inactivity became even more pronounced among the working-age population, while the number of informal workers declined.

Because of the economic recovery and the relaxation of social distancing measures, in a less structured labor market, the number of informal workers grew in 2021, reaching its peak in 2022. On the other hand, the number of unemployed workers and inactive individuals decreased. But after a decade of profound economic transformations, these two conditions became more prevalent among the working-age population, finishing the period with respective increases of 32.3% and 11.5% compared to 2012.

Figure 1: Evolution in the number of inactive people, informal workers, and unemployed individuals

 

Source: Microdata from the PNAD-C (2012-2022).

To complement this panorama, Figure 2 shows that employment levels are lower among young and older women, indicating a weaker attachment to the labor market. Between 2012 and 2017, employment levels declined for men aged 18 to 59 years and for women aged 18 to 29 years. This trend was particularly pronounced for men, since they tend to engage in cyclical occupations such as the civil construction sector and manufacturing. Hence, the economic crisis had a more substantial impact on male employment.

From 2017 to 2022, employment levels grew for both men and women aged 18 to 59 years, due to the economic recovery after the COVID-19 pandemic. Even so, in 2022, the female employment level was still lower than that of men in all age groups. Besides, the employment level among young men remained below that recorded in 2012. This reflects the challenges faced by young individuals with low professional qualification and experience.

For women aged 25 to 59 years, the employment level in 2022 surpasses that of 2012. This could be attributed to complementary trends, including shifts in female economic participation, the need for additional family members to contribute to household income, and the recovery of the tertiary sector in 2022. Further research is needed for a more thorough understanding of this phenomenon.

Figure 2: Employment level, by gender and age groups

 

Source: Microdata from the PNAD-C (2012-2022).

Figure 3 depicts the same calculations for income household quintiles. Employment level rises with income and, increasingly, poor households are composed of individuals who are either unemployed or inactive.

Figure 3: Employment level, by gender and household income quintile

 

Source: Microdata from the PNAD-C (2012-2022).

In the lowest quintile, both for men and women, employment levels declined between 2012 and 2017 and remained practically unchanged from 2017 to 2022. In other income quintiles, the employment level in 2022 either rebounded to or surpassed the levels recorded in 2012[2].

In a scenario where more people are facing unemployment, inactivity, or informality, the decrease in employment levels among the poor and young men points to some challenges. How can we (re)design a welfare system when access to work is more difficult now than a decade ago, precisely for those in the lowest income quintile? How can we compensate household income and ensure that individuals can meet the requirements for labor market participation? And considering the diversification in the absence of paid work and the growing number of inactive individuals, how can we effectively integrate employment and assistance policies? Another issue is the consistently low employment level among women, which highlights the relevance of public childcare and employment policies directed to support their economic participation.

Social protection and access to resources in Brazil

The correlation between the absence of paid work and living conditions varies among societies due to demographic characteristics and social protection systems. Within the population, this correlation depends on the availability of personal and family resources.

Figure 4 shows the poverty rate by household arrangement and the householder condition. The poverty rate refers to individuals with a per capita household income below 1/3 of the Brazilian minimum wage, whose value was fixed in 2022 and then deflated for previous years (Medeiros, Barbosa and Carvalhaes, 2019).

The data reveals high poverty rates alongside a markedly restrictive welfare system. Labor protection benefits a small fraction of wage workers, while many individuals receive benefits valued below the minimum necessary to afford essential goods and services. Moreover, marital selection and educational homogamy concentrate unemployment and inactivity within specific households, resulting in a situation where the absence of paid work for one individual often extends to their relatives.

The impact of unemployment and inactivity is pronounced in households with children. This is because the available income, which may come from savings, pensions, and social benefits, must be distributed among potentially dependent individuals. In contrast, single-person households do not share their income, ensuring the household’s livelihood when the individual is employed. But the absence of paid work substantially elevates the poverty rate for single-person arrangements, as the head of household lacks other individuals to share the economic burden.

The most worrying scenario is in single-mother arrangements, where a sole breadwinner shares her income with sons and daughters. When the mother is the sole provider and lacks access to a stable income, unemployment or inactivity can hinder her ability to meet basic needs. The participation of other adults in the distribution of family resources, through their work income or access to social benefits, reduce the poverty rate.

Figure 4: Poverty index, by household arrangements and condition of the head of household

Source: Microdata from the PNAD-C (2012-2022).

Poverty rates grew during the 2014-2016 crisis and continued to rise after the COVID-19 pandemic. When examining each household arrangement, the disparities in poverty rates based on employment status increased across all types, especially in households that included other relatives in addition to couples and children. This underscores the delicate balance between household size and the socialization of economic risks. While relatives can serve as a source of protection for some households, they can become an additional burden for others. Additionally, the distance between the lines in Figure 4 indicates that the absence of paid work is now more strongly correlated to poverty than before, raising concerns about the reach and effectiveness of social protection.

A simple method for highlight potential gaps in the Brazilian welfare system is to identify the household members that receive public benefits, which can include unemployment insurance, the Bolsa Família Program, the Continuous Cash Benefit Program (BPC), pensions, retirement supplements, as well as other benefits not specified by the PNAD-C.

Figure 5 shows that between 30% and 45% of individuals living in poverty and facing inactivity or unemployment do not have access to social protection. This problem primarily stems from the limited coverage of the social insurance system, given the constraints of wage relations in Brazil. The situation is compounded by the use of a restrictive poverty line by the Brazilian Government, which is not automatically adjusted for inflation. Unemployed and inactive individuals, whose per capita income falls within the range between the administrative poverty line and the threshold depicted in Figure 5, find themselves in a vulnerable situation, yet are unable to access public benefits, whether through individual eligibility or via other household members.

Figure 5: Ratio of poor non-employed individuals without access to any kind of public protection in the household, by age

  

Source: Microdata from the PNAD-C (2012-2022).

Changes from one year to another must be interpreted with caution. A decrease in the number of unprotected individuals can, in some cases, occur because these individuals have fallen into extreme poverty, thus becoming eligible for assistance policies. The critical message here is that there are numerous poor inactive and unemployed individuals who are excluded from both the labor market and the dualistic welfare system, existing in a void between market and the State support.

The number of unprotected individuals in the age group of 40 years and older increased from 2012 to 2017, a period marked by economic crisis and the implementation of a restrictive reform in 2015 affecting unemployment insurance. However, from 2017 to 2022, these rates dropped across all age groups except for inactive/unemployed individuals aged 60 years and older. While further investigation is necessary to grasp this phenomenon, it is worth noting that the BPC, a social program directed to the elderly poor, uses a more stringent poverty line (equivalent to 1/4 of the minimum wage) and features a higher eligibility age (65 years). Certainly, the protection of older individuals in an aging society stands as a central subject for both research and public debate.

The dualism of the welfare system fails to establish a comprehensive safety net against economic risks. The instability of the labor market, associated with the limitations of both employment policies and assistance programs, underscores the importance of addressing the issue of unprotected unemployment and inactivity.

Two approaches for the development of a research agenda

One of the most pressing challenges lies in developing a more comprehensive welfare system, improving the access to public benefits, and guaranteeing professional qualification for young and low-schooled workers. The socialization of economic risks has become an inevitable debate in Brazil, considering the declining employment rates among the poor and the void that exists between the State and the labor market for many who are inactive or unemployed.

I will advance this research agenda through two approaches. The first approach entails mapping the recent developments of the Brazilian welfare system. Which modifications were applied to employment and assistance policies during the early 2020s? And how the use of different eligibility criteria creates groups of policyholders within the social protection system (Guimarães et al, 2017)? The last years were marked not only by the COVID-19 pandemic but also by a transition from a far-right to a center-left government. Then, such a period holds particular importance for the study of sociopolitical disputes concerning the design and implementation of the Brazilian welfare system.

The second approach regards the household as a unit of social reproduction, encompassing the dynamics of paid and unpaid work. It is crucial to examine changes in the composition of household income during the last decade, as well as to investigate the conditions for social support across different household arrangements. Another topic is that, in a quite unequal country, different policies must be combined to support household members and to improve living conditions. For instance, we can consider the relevance of both public childcare and cash transfer programs in aiding young women who are pursuing professional qualifications and employment opportunities.

In summary, this research agenda focuses on recent developments of the Brazilian welfare system, investigating the stratification within both the labor market and in the access to public protection.