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

1. A very abbreviated analytical framework

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

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

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

Baseline (2003) 42234,114,5 After unemployment is eliminated 42232,012,8 Impact on poverty (%) ,211,8 Impact on poverty of eliminating unemployment in Brazil, holding constant total earnings Mean income Poverty Extreme 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, GDP (R$ billions/year) employment (million) Espírito Santo Ceará Pernambuco

IndicatorsCearáEspírito Santo Average earnings (1000 R$ per year) 3,56,3 Employment (millions) 3,31,5 Total earnings (in billions of R$ per year) 11,69,6 GDP* (in billions of R$ per year) 23,022,0 Total earnings as a share of GDP (%) 50,643,7 Employment, earnings and production level

2. Agriculture development and rural poverty in Brazil over the 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 rural Demografia Preços agrícolas Mudanças tecnológicas Labor force qualification Agriculture production Agriculture Labor market Rural poverty Agro and non agro labor market integration Social security Rural poverty determinants Job quality Non agro activities for rural families Demographics Agricultural prices Technological progress

Evolution of rural poverty Workers in agriculture year Poverty headcount (%) 7.6

Evolution of the terms of trade in agriculture year Relative prices (1990=100) 13%

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

Evolution of agriculture production year Production quantum (1990=100) 37%

Evolution of labor force and earnings in agriculture over the last decade year Agriculture labor force (millions) Average earnings in agriculture (R$/month) Labor forceEarnings in agriculture 11% -15%

Expressions for the household per capita income f y  household per capita income f d  proportion of adults f r  average earnings among adults

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

f y  household per capita income f d  proportion of adults af t  average agriculture labor earnings among adults fna t,  average non agriculture labor earnings among adults - f o  average non labor income among adults

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

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 earnings per agriculture worker if labor earnings per agriculture worker were that prevailing in % Impact of changes in labor 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

Impact on poverty of changes in the proportion of adults working in agriculture if labor earnings per agriculture worker were that prevailing in if agriculture labor earnings per a dult were that prevailing in

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

Impact on poverty of changes in non agriculture labor earnings per adult % Impact of changes in non agriculture labor earnings per adult 1992 if labor earnings per were that prevailing in 2001 agriculture worker 1992 if agriculture labor earnings per a dult were that prevailing in if labor earnings per a dult were that prevailing in 2001

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

Impact on poverty of demographic changes and the impact of changes in non labor earnings % Impact of changes in non labor income 21% Impact of demographic changes if labor earnings per were that prevailing in 2001 agriculture worker 1992 if agriculture labor earnings per a dult were that prevailing in if labor earnings per a dult were that prevailing in if income per a dult were that prevailing in 2001

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.

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

Modelos 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) 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 658,20,742,50,3 42 0,7 Beneficiarios de la seguridad social con beneficios cercanos al salario mínimo 660,0 2,4 42,20,6 24 1,4 Empleados formalesy beneficiarios de la seguridad social con beneficios cercanos al salario mínimo 660,7 3,1 41,9 0,9 28 2,1 658,6 0,9 41,9 0,9 1002,1 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 un aumento del 10% en el salario mínimo: Impacto al aumentar el beneficio básico de Bolsa Famíliaen R$17,5 por familia por mes

Indicators Poor Extremely poor Poverty rate among formal employees with earnings near the minimum wage 317 Percentage of poor families with at least one formal worker with earnings near the minimum wage 149 Percentage of poor families without any formal worker with earnings near the minimum wage 8691 Minimum wage and poverty in Brazil

Distribution of workers according to the percentiles of the distribution of family per capita income 0,0 0,5 1,0 1,5 2,0 2,5 3, Percentiles of the distribution Percentage of workers by percentile Formal employees (1 a 1.25 SM) Self-employed works in Maranhão