Do Brazilians Want Formal Jobs?

2020 has been the year of COVID-19, and in some way, it's touched everyone around the world. Brazil's economy is no exception. Their country and economy have been devastated by the pandemic, with millions of deaths and layoffs. 

As the country heads into 2021, there are significant questions about the pandemic's impact, specifically on the informal and formal market. Social, political, and economic changes in Brazil have previously created shifts in the labor markets' relative sizes, and the pandemic is poised to the same. With this disastrous impact and subsequent government policies, Brazil is entering a period of major economic change.

Various government policies reveal that the pandemic may be pushing citizens, especially low-income people, toward the informal sector. The informal market, a sector of the economy not widely seen in the US, has always comprised approximately 60% of Brazil's labor force.

Even though a formal job usually means a more stable income, recent Brazilian policies mean people are more likely to remain in informality. For instance, Brazil recently raised the minimum wage. Even though minimum wage hikes usually incentivize formal market involvement, past increases have increased the size of Brazil's informal market. 

This shift is unique to Brazil. When the minimum wage is increased in other countries, the formal market's size relative to the informal market usually increases because people want higher incomes. However, in Brazil, a higher minimum wage creates more national disposable income, subsequently creating a higher demand for informal goods. 

Additionally, the "earning's cliff," a phenomenon dealing with income and means-tested welfare, incentivizes Brazil's informality. Brazil has a significant and widespread social welfare program in the form of Bolsa Família, a government program that provides welfare benefits based on a family's formal income. These conditional cash transfers are increasing the size of the informal market relative to the formal market. 

With means-tested welfare, such as Bolsa Família, benefits are cut off when formal income surpasses a government determined level. Therefore, when a formal worker's income is nearing that point, they shift their labor toward the informal sector to keep their benefits, hence, creating an earning’s cliff. If they increased formal work, they would lose welfare benefits. This incentivizes a shift toward the informal market, allowing people to essentially monetarily double-dip.

In turn, Bolsa Família reduces weekly hours worked in the formal market per family member by 10.1 hours and creates a similar increase in hours worked in the informal market. Means-tested welfare created a shift in what sector Brazilian people focus their working-time, and COVID-19 will accelerate this trend. Due to the pandemic, Brazil's unemployment rate has reached an all-time high, pushing more people into welfare and, subsequently, informal work.

While a formal job is traditionally seen as more secure, Brazil presents an interesting case of widespread informality. With minimum wage hikes increasing informal demand and welfare benefits creating market shifts, coronavirus will induce a shift toward Brazil's informal market.