Growth, Employment and Poverty in Brazil

1. Growth, Employment and Poverty in Brazil Ricardo Barros Mirela de Carvalho Samuel Franco Brasília, January 2005

2. 1. A very abbreviated analytical framework

4. 1a. The response of labor demand to growth depends on the sources of growth

6. 1b. The response of employment and labor income to changes in labor demand depends on: (i) the degree of integration of labor markets and (ii) the broadness of the changes in labor demand

8. 1c. Wage flexibility could be an effective instrument to reduce inequality and poverty

10. Impact on poverty of eliminating unemployment in Brazil, holding constant total earnings Mean Extreme Alternatives Poverty income poverty 422 34,1 14,5 Baseline (2003) 422 32,0 12,8 After unemployment is eliminated ...... 6,2 11,8 Impact on poverty (%)

11. Relationship between employment and GDP 10,00 9,00 8,00 7,00 6,00 5,00 employment (million) 4,00 Pernambuco Ceará 3,00 2,00 Espírito Santo 1,00 0,00 0 20 40 60 80 100 120 140 160 180 200 GDP (R$ billions/year)

12. Employment, earnings and production level Indicators Ceará Espírito Santo 3,5 6,3 Average earnings (1000 R$ per year) 3,3 1,5 Employment (millions) 11,6 9,6 Total earnings (in billions of R$ per year) 23,0 22,0 GDP* (in billions of R$ per year) 50,6 43,7 Total earnings as a share of GDP (%)

13. 2. Agriculture development and rural poverty in Brazil over the last decade

14. Rural poverty determinants Qualificação dos Labor force Technological Mudanças Previdência Qualidade dos Job quality Social security trabalhadores qualification tecnológicas progress rural postos de trabalho agrícolas Agriculture Produção Agriculture Trabalho Rural poverty Pobreza rural production agrícola Labor market agrícola Atividades não Agro and non agro Integração dos Non agro activities for rural families Agricultural prices Preços agrícolas Demographics agrícolas pela mercados agrícola labor market Demografia população rural e não agrícola integration

15. Evolution of rural poverty Workers in agriculture 60 59 58 57 56 Poverty headcount (%) 55 7.6 54 53 52 51 50 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 year

16. Evolution of the terms of trade in agriculture 145 135 125 Relative prices (1990=100) 115 13% 105 95 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 year

17. Growth in productivity: 1985-1995 Variation (1995-1985) 16% Production level -8% Inputs 26% Total factor productivity

18. Evolution of agriculture production 140 130 120 37% Production quantum (1990=100) 110 100 90 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 year

19. Evolution of labor force and earnings in agriculture over the last decade 19.0 200 18.5 195 18.0 190 17.5 185 -15% 17.0 180 16.5 175 16.0 (millions) Agriculture labor force (R$/month) Average earnings in agriculture 15.5 170 15.0 165 14.5 160 14.0 155 13.5 11% 150 13.0 145 12.5 12.0 140 1992 1993 1995 1996 1997 1998 1999 2001 year Labor force Earnings in agriculture

20. y f d f r f Expressions for the householdper capita income household per capita income à proportion of adults à average earnings among adults à

21. y f d f t f o f Expressions for the householdper capita income household per capita income à proportion of adults à average labor earnings among adults à average non labor income among adults à

22. y f d f t af t , na f o f Expressions for the householdper capita income household per capita income à proportion of adults à average agriculture labor earnings among adults à average non agriculture labor earnings among adults - à average non labor income among adults à

23. y f d f p f s f t , na f o f Expressions for the householdper capita income household per capita income à proportion of adults à proportion of adults working in agriculture à average labor earnings among agriculture workers à average non agriculture labor earnings among adults - à average non labor income among adults à

24. Household per capita income that would prevail in 1992, if the distribution of labor earnings in agriculture were that prevailing in 2001

25. Impact on poverty of changes in labor earnings per agriculture worker 60 Impact of changes in labor earnings per agriculture worker 19% 58 56 54 52 50 1992 1992 if labor earnings 2001 per agriculture worker were that prevailing in 2001

26. Household per capita income that would prevail in 1992, if the distribution of agriculture labor earnings per adult were that prevailing in 2001

27. Impact on poverty of changes in the proportion of adults working in agriculture 60 58 56 54 52 50 1992 if labor 1992 if agriculture 2001 1992 earnings per labor earnings per agriculture worker adult were that were that prevailing prevailing in 2001 in 2001

28. Household per capita income that would prevail in 1992, if the distribution of labor earnings per adult were that prevailing in 2001

29. Impact on poverty of changes in non agriculture labor earnings per adult Impact of changes 60 in non agriculture labor earnings per adult 2% 58 56 54 52 50 1992 2001 1992 if labor 1992 if agriculture 1992 if earnings per labor earnings labor earnings agriculture worker per adult were per adult were were that prevailing that prevailing that prevailing in 2001 in 2001 in 2001

30. Household per capita income that would prevail in 1992, if the distribution of income per adult were that prevailing in 2001

31. Impact on poverty of demographic changes and the impact of changes in non labor earnings 60 Impact of changes in non labor income 58 56 73% 54 Impact of demographic changes 21% 52 50 1992 1992 if 2001 1992 if labor 1992 if agriculture 1992 if income per earnings per labor earnings labor earnings adult were agriculture worker per adult were per adult were that prevailing were that prevailing that prevailing that prevailing in 2001 in 2001 in 2001 in 2001

32. Conclusion 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.

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

50. El impacto de cambios en el salario mínimo y de los benficios de la Bolsa Familia en el nivel de pobreza Mejora en el Ingreso que beneficia a las familias pobres (mil millones R$ por año) Ingreso total familiar (mil millones de R$ por año) Mejora en el ingreso familiar (mil millones R$ por año) Brecha en el ingreso de 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 (%) Modelos 657,6 --- 42,8 --- --- --- Línea de base (2002) Impacto en el ingreso familiar de un aumento del 10% en el salario mínimo: Empleados formales que ganen cerca del salario mínimo 658,2 0,7 42,5 0,3 42 0,7 Beneficiarios de la seguridad socialcon 2,4 660,0 42,2 0,6 24 1,4 beneficios cercanos al salario mínimo Empleados formalesy beneficiarios de la seguridad socialcon beneficios cercanos al salario mínimo 3,1 0,9 660,7 41,9 28 2,1 Impacto al aumentarel beneficio básico de 0,9 0,9 658,6 41,9 100 2,1 Bolsa Família en R$17,5 porfamilia por mes