Letter IEDI n. 935–Employment in Brazilian industry during the recent economic crisis
The industry is one of the main engines of growth because it is capable of spreading dynamism to all economic activities through the innumerable and different interactions established with other sectors. There is also another reason for this important role: the characteristics of the employment the industry generates.
In the first quarter of 2019, manufacturing was the 3rd largest employer among the main economic sectors, behind services and retail trade, accounting for 13% of total private sector jobs. But its true positive contribution is more qualitative than quantitative, as shown by the data of the Continuous PNAD (national survey of employment) analyzed in this Letter IEDI.
Of the 10.4 million people employed by manufacturing, 6.6 million (63% of the total) had jobs with formal contracts. In trade and services, which are the main employers, the rate of formalization is much lower: 46% and 40%, respectively. This means that, among the main job-generating sectors, industrial employment is the most formalized.
Although the aggregate proportion is already significant, in 16 of the 25 manufacturing branches it is actually much higher. This is the case of coke and petroleum products, with 96% of workers with a formal contract, pharmaceutical and pharmochemicals (95%), and machinery and equipment, and vehicles, trailers and bodies (94% of formal employment). That is, the proportion is higher in branches that require greater professional qualification and where, as a consequence, retention of specialized staff becomes strategic.
Thus, when the industry grows —especially its branches of greater technological intensity— it is able to boost formal employment. Increasing the number of workers with formal contracts is important for economic dynamism because their income tends to be larger, more regular and allows a better insertion in the credit market, since the formal relationship improves the risk assessment done by lenders. All this stimulates the country's consumer market.
In this sense, wages about 10% above the general private sector average are another positive contribution of the manufacturing industry. Most manufacturing branches, however, have earnings with an even more significant positive differential: in 16 out of 24 branches wages were higher than the private sector average.
For these reasons, due to impacts on industrial employment, the sector's 2014-2016 crisis and the weak recovery in 2017-2018 not only slow improvements in the country's job market as a whole, but also, due to qualitative aspects, have worked as an obstacle to GDP acceleration. The fact that industrial output was back into the red in the transition from 2018 to 2019 only exacerbates the situation.
The effects of the recession and the weakness of the sector's recovery in 2017-2018 have profoundly affected the industrial labor market. Taking early 2015 as a reference, the stock of employed persons in the private sector in Q1/2019 increased by 871 thousand people. While in services the additional balance reached 3.6 million people, in the manufacturing industry the number remained negative at 1.4 million people, explaining the difficulty of reaction of formal work.
In other words, in Q1/19, the total number of people employed in manufacturing is still 12% down from Q1/15. Among the branches with the largest percentage declines are: other transportation equipment except vehicles (-49%), metallurgy (-32%), coke and petroleum products (-30%), computer equipment, electronic and optical products (-18%) and electric machines and appliances (-18%), among others.
Real incomes in some of these branches with the greatest reduction in employment are also the ones farthest from the levels of early 2015. While average real manufacturing income registered a variation of -2% in Q1/19 compared to Q1/15, the fall reached -24% in other transport equipment except vehicles, -18%, in textile products, -15% in computer equipment, electronic and optical products, and -14% in metal products, except machinery and equipment.