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Brazil Beautician’s Dream Shows Low Jobless Paradox: Economy

December 20, 2013

Brazil Beautician’s Dream Shows Low Jobless Paradox

Monica Werneck in her beauty salon in Complexo de Alemao favela in Rio de Janiero. Photographer: Dado Galdieri/Bloomberg

Monica Werneck and her husband bought a rat-infested “dump” on the edge of a Rio de Janeiro slum in 2012. They built a beauty salon that opened last week, complete with two manicurists whose jobs she’s registering with the government.

“It’s a dream that’s starting to come together,” said Werneck, 32, in her freshly painted shop at the base of the Complexo de Alemao favela. “I still have a lot in mind that I want to do.” The plans include taking on two hairdressers and a beautician.

Such small entrepreneurs helped Brazil generate 1 million registered jobs in the 12 months through November, 81 percent of them in the service and commerce sectors, which includes everything from laundromats to dentistry, photocopying and auto repair. While that’s down from 1.4 million in the same period of 2012, it was still enough to keep joblessness near record lows.

During President Dilma Rousseff’s almost three years in office, unemployment in the world’s second-biggest emerging market has fallen, to 4.6 percent in November from 6.1 percent in January 2011, even as gross domestic product growth averaged the lowest in a decade. That’s because most jobs were created in the service sector and deliver low productivity, according to former central bank director Carlos Langoni.

“It explains this apparent paradox where you have an economy with 2 percent GDP growth, but working at full employment,” Langoni said in an interview at his Rio de Janeiro office. At the current jobless rate, Brazil is considered to be at full employment, central bank President Alexandre Tombini said on Dec. 10.

Unsustainable Pace

Langoni said unless job creation spreads to other sectors, the low unemployment rate can’t be sustained. “If we go on growing at 2 percent, sooner or later the labor market will reflect the slowdown,” he said. “Services can’t support it by itself.”

The average service employee makes a smaller contribution to GDP than workers in other sectors, such as manufacturing. Services and retail accounted for 73 percent of all government-registered jobs in September, according to the National Services Confederation. Yet those sectors generated only 58.5 percent of third-quarter GDP, (BZGDQOQ%) which contracted 0.5 percent from the previous period, according to the national statistics agency.

There are already signs Brazil’s labor market is losing steam. Job creation in the first 11 months of the year marked the third consecutive decline from 2.5 million in 2010. The 12-month moving average of unemployment fell every month of Rousseff’s administration through April, to 5.43 percent from 6.74 percent in December 2010, the month before she took office. It has since leveled off at 5.42 percent in November.

Wage Growth

A slower rise in real wages also signals softness, according to Tony Volpon, head of emerging markets research at Nomura Holdings Inc. Real wages in November rose 3 percent from the same month in 2012, down from 5.3 percent the year before according to the statistics agency, which measures employment in six cities.

“The next step will be higher unemployment, and I think that’s going to be coming in 2014,” Volpon said by phone from New York.

The low jobless rate has helped boost Rousseff’s approval rating prior to presidential elections next October. “We’re a country with one of the lowest unemployment rates in the world, and we’ll stay that way,” Rousseff says in a television spot currently airing. “In addition, we’ll generate more and more quality jobs.”

Brazil’s economy will grow 2.3 percent this year and 2 percent next year, according to the latest central bank survey of economists, up from 1 percent last year. Growth during Rousseff’s first three years in office will average 2 percent, according to economists surveyed by Bloomberg, the lowest since 2001-2003.

Budget Deficit

The benchmark Ibovespa (IBOV) index has fallen 25.8 percent since Rousseff took office, compared with the Mexican benchmark IPC index’s 10.1 percent gain. Brazil’s growing budget deficit prompted Standard & Poor’s and Moody’s Investors Service to cut their outlooks on the sovereign credit rating this year, helping to spur an 11.2 percent drop in the country’s dollar bonds in 2013, compared with a 6.5 percent loss for emerging markets.

Thanks to the government’s social welfare policies, especially the cash transfer program known as Bolsa Familia and yearly increases in the minimum wage, the modest expansion of GDP hasn’t stopped Brazil’s middle class from growing. Over the last 10 years, 41 million Brazilians emerged from poverty, according to Sao Paulo-based research company Data Popular.

Consumer Goods

The government’s Secretariat of Strategic Affairs defines “middle class” as average monthly per capita income of 291 reais ($124) to 1,091 reais, based on data from mid-2012. The millions who have recently attained that level have already increased their spending on durable consumer goods, and now are purchasing services they couldn’t afford before, according to Carlos Thadeu de Freitas, a former central bank director. Many goods are imported, which limits the impact of increased consumption on Brazil’s industrial production and growth, he said.

“They’re a lot better off, so they’re demanding more services, and this is cutting the unemployment rate,” De Freitas, chief economist at the National Confederation of Goods, Services and Tourism Commerce, said by phone.

Also helping keep a lid on unemployment is the decline in Brazil’s workforce participation rate -- the number of people in the labor force divided by total population of working age. Participation fell to 57.5 percent in 2012 from 59.5 percent in 2009, according to a report from government research agency IPEA. It fell further to 56.8 percent in November, the statistics agency said yesterday. That’s largely due to an aging population, according to Claudio Dedecca, an economist specializing in labor at the University of Campinas.

In School

Reinforcing this demographic trend, young people are remaining in school longer, which has removed hundreds of thousands from the work force and helps hold down the unemployment rate, said Dedecca.

The labor force of those aged 15-24 in November fell to 3.8 million from 4.1 million last year and 4.8 million a decade earlier, according to the national statistics agency.

“The participation rate receded significantly, confirming the labor market’s lack of dynamism and foretelling increases in the unemployment rate,” Rosenberg Associados economists led by Thais Zara wrote in a note to clients after release of yesterday’s jobless data.

Industrial Hub

Even the industrial hub of Vitoria, the capital of Espirito Santo state, is relying on services for job growth. The three-month moving average increase in the state’s industrial output has exceeded both the national and regional averages for four years through September, the central bank said. Yet services and commerce account for 57 percent of jobs created this year through October.

In the state’s government unemployment office, Edison Arcanjo is looking for a job after completing a master’s degree in arts at the state university. He wants to become a teacher.

“I was living off a scholarship, and that ended last month, so I’m going back to work,” Arcanjo, 47, said. “While I wait for an opportunity in my area, I’m looking for anything temporary.”

The office offered him 15 prospects, all in the commerce sector. He chose to interview for a job restocking groceries.

To contact the reporter on this story: David Biller in Rio de Janeiro at dbiller1@bloomberg.net

To contact the editor responsible for this story: Andre Soliani at asoliani@bloomberg.net


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