Brazil: Extreme poverty is up by 11% in 2017; economists blame informal labor

Survey was based on new data on income and inequality released Wednesday (11)

Brasil de Fato, en São Paulo |
The World Bank’s extreme poverty line sets the income per capita at US$1.90 or less a day
The World Bank’s extreme poverty line sets the income per capita at US$1.90 or less a day - Rovena Rosa/Agência Brasil

The number of people in extreme poverty in Brazil went up by 11.2% in 2017 over 2016, from 13.34 million to 14.83 million people last year, according to consulting firm LCA Consultores, based on data released on Wednesday (11) by the Brazilian Institute of Geography and Statistics (IBGE). To draw this conclusion, the firm used the World Bank’s global poverty line, which sets the income per capita at US$1.90 a day as the limit defining extreme poverty in developing countries.

Specialists say the increase in extreme poverty in the country is mainly related to the rise in the informal sector. The IBGE analyzed data from the Continuous National Sample Survey of Households (PNAD), released in February, which showed that, in December 2017, informal workers represented 37.1% of Brazil’s employed persons. According to the IBGE, this is the first time in Brazil’s history that laborers working without employment contract have outnumbered formal laborers.

LCA Consultora economist Cosmo Donato told newspaper Valor Econômico that the number of formal job openings has decreased in the country. “Instead of offering jobs [with labor guarantees and floor wages], the job market has created low-wage, unstable, informal positions over time,” Donato said.

According to Adriana Marcolino, an economist with the country’s Inter-Union Department of Statistics and Socio-Economic Studies (DIEESE), the rise in the number of positions with no employment contract, along with the lack of real minimum wage increase, has greatly impacted social inequality in Brazil.

“Unemployment rates are high and the jobs that are being created are low-quality, informal, unstable, and offer lower wages. All these elements contribute to increase inequality,” Marcoline highlighted.

According to IBGE data, in 2017, the wealthiest 1% of Brazil’s population earned 36.1 times more than the bottom half of the population, with an average monthly income of R$27,213 (nearly US$8,000). The survey also shows that the poorest 5% of the Brazilian population received an average income of R$40 (around US$11) a month in 2017, 18% less than the year before (R$49, or approximately US$14). Meanwhile, the income of the richest 1% has dropped only 2.3% in the period.

During the release of the Continuous PNAD special edition, IBGE Labor and Income coordinator Cimar Azeredo pointed out that the decline in the income of those in formal employment was also one of the reasons contributing to inequality. “The quality of employment in 2017 was low, and unemployment rates were down only thanks to informal labor,” he said.

However, according to Marcolino, the survey does not reflect the actual picture of inequality in Brazil, as the data gathered by the IBGE only takes into account information about income generated through employment, social security, pensions, rental properties, or public policies such as the conditional cash transfer program Bolsa Família.

“The problem with this metric is that it does not include Brazil’s super-rich, who invest in stocks. That could only be considered if the IBGE had data about income tax. So, in reality, inequality in Brazil is much greater than what we are talking about,” she said.

Bolsa Família

The number of Bolsa Família beneficiaries dropped in 2017 during president Michel Temer’s administration, and this is also one of the reasons that contributed to increase social inequality in the country last year. The IBGE has pointed out that at least 326 thousand households stopped receiving the benefit in 2017.

Brazil’s Northeast region was the most severely impacted by the cuts: 131 thousand northeastern households could no longer count on the extra money as of last year. The impact was also greater in region’s inequality rate. Its Gini coefficient, the world’s most important income inequality index, was up from 0.555 in 2016 to 0.567 in 2017. Marcolino believes the two metrics are connected.

“In the Northeast, the minimum wage, Bolsa Família, and formal labor were important elements to fight inequality. With Bolsa Família cuts, now extremely poor people only receive low income from work. The fact that unemployment is on the rise and they are getting laid off puts them in a situation of severe vulnerability,” she argued.

Edited by: Diego Sartorato | Translated by: Aline Scátola and reviewed by Pedro Ribeiro Nogueira