Brazil’s Persistent Unemployment Challenge by Mark Langevin

jobs.jpg

Georgetown Journal of International Affairs

May 3, 2019

Mark S. Langevin, Ph.D.

High unemployment may become the greatest test for the new government of President Jair Bolsonaro and his Minister of the Economy, Paulo Guedes. Bolsonaro promised to fight corruption and crime during the 2018 campaign season, but a 12.4 percent unemployment rate now threatens to curtail his popularity. According to a September 2018 DataFolha survey, only 14 percent of voters considered unemployment the number one problem facing the new government. The survey showed that most voters were concerned with public healthcare, violence, and corruption. Bolsonaro won the presidency because he exclusively focused on violence and corruption, albeit without well-defined policy prescriptions. Bolsonaro and Guedes gave little attention to the unemployment challenge and asserted that future fiscal stability and deregulation would spark accelerating job creation. Read more here.

April 2019 Brazil Risk Score of 4: High by Mark Langevin

Brasil Risk April 2019.png

The April 2019 Brazil Risk Score Is 4: Represents High Country Risk

·       Misery Index/Poor Performance

·       Formal Employment Index/Stable Performance

·       Economic Activity Index/Stable Performance

·       Homicide Rate/Improved Performance

·       Presidential Approval/Poor Performance

The April 2019 Brazil Risk Score of 4 and represents a measurable decline from the March score, largely because of the uptick in unemployment and decrease in presidential approval. The homicide rate continues to show a measurable decline to achieve improved performance with Globo’s Violence Monitor showing declines for January and February of 2019. The Central Bank’s Economic Activity Index reports the February measure with a slight decline but well within a stable variation and reflective of Brazil’s fragile recovery from the recession (2015-2017). There is no evidence that economic activity has rapidly improved or declined since the last measure was reported. Last, the presidential approval rating, as measured by Ibope, has declined from 68 to 66, taking together both excellent and regular ratings. For now we score approval as poor with a negative outlook.

The score of 4 returns returns the BrazilWorks Brazil Risk score to the average since July and represents a downgrade from the March 2019 moderate score of 6. The series mean average since July 2018 is 4.80.

April 2019: Brazilian Unemployment and Presidential Approval by Mark Langevin

Source: Reuters

Source: Reuters

Brazilian unemployment poses a significant political risk for the Bolsonaro administration and their political allies around the country. The uptick in high levels of unemployment calls attention to the government’s neglect of this policy challenge. Unemployment rates may decline in 2019 but the high levels of underemployment and the spread of precarious work will play key contributing factors in the 2020 municipal elections, especially in the Southeast region where both presidential approval and unemployment are relatively high in early 2019.

The April 2019 DataFolha poll shows a 32 percent excellent rating for President Bolsonaro among respondents. A large majority of respondents find his performance as excellent, good or regular. This level is compatible with a honeymoon period but could increase or decrease depending on economic performance in general and unemployment in particular.

Then candidate Bolsonaro garnered the largest portions of the first round 2018 presidential election came in both Macapá (44.47%) and Manaus (57.30%), the capitals of Amapá and Amazonia respectively. These capital cities continue to suffer unemployment levels well above the national average of 12.4%. Macapá has the highest rate in the nation at 18.2 percent and Manaus with 18.1. Currently, 38 percent of the North region report an excellent rating for the Bolsonaro government but continued unemployment could drag this rating down toward the national average of 32 percent during the later half of 2019. If Bolsonaro’s political opposition transform the 2020 municipal elections into a referendum on the federal government’s management of the economy, then these two capital cities could provide fertile ground for center-left candidates.

However, the future of Brazilian politics will be fought over the Southeast region where unemployment rates are at or above the national average. President Bolsonaro’s excellent rating rises just above the national average at 33 percent. In this region, the city of São Paulo will play a critical role because of its 14.2 percent unemployment. Then candidate Bolsonaro garnered majorities in all Southeast region state capitals except for  the city of São Paulo with 44.58 percent, very close to his national slice of the electorate at 44.03. Belo Horizonte (MG), Rio de Janeiro (RJ), and Vitória (ES) all cast impressive majorities for Bolsonaro that surpassed 53 percent with a high of 58.29 in the city of Rio de Janeiro. If the president can preserve these levels of political support then his party’s candidates and his political allies should do well in 2020. Yet, sustained high levels of unemployment and underemployment will likely puncture the president’s approval in the region and especially in the capital cities, and thereby open the door to gains by the political opposition and those candidates and parties that emphasize policies and programs that directly attend to the unemployment policy challenge.

In many ways the mayoral contests in the region’s capital cities will likely reflect the president’s popularity and economic management, and unemployment may become the best or worst indicator pushing or pulling presidential approval. Stay tuned!

The Bolsonaro Government and Unemployment by Mark Langevin

Source: Trading Economics at: https://tradingeconomics.com/brazil/unemployment-rate

The March 2019 BrazilWorks Brazil Risk Index was moderate at 6 and well within the average in the last 9 months. However, form employment creation and unemployment continued to plague Brazil and heighten country risk. Unemployment is a major policy challenge but one that is neglected by President Bolsonaro and his Minister of the Economy Paulo Guedes. During the 2018 campaign season unemployment was declining very modestly, but the first few months of 2019 show a slight uptick, coupled with stagnant growth, should alarm policymakers in advance of the 2020 municipal elections.

The president’s party, the Social Liberal Party (PSL), has the most to lose if unemployment remains a serious policy challenge during the second half of 2020. Bolsonaro and his PSL were the big winners in the 2018 elections but could suffer a serious defeat in 2020 if high unemployment lingers. Today’s 12. 4 percent unemployment rate is further complicated by increasing underemployment and the growing legion of workers who have fallen out of the labor market altogether and now pose a latent but dynamic source of political opposition to the president, his party and closet allies.

The latest DataFolha presidential approval survey shows that President Bolsarono’s excellent rating stands at 32 percent of respondents and a combined rate of excellent/regular of 65%. While Bolsonaro’s marks out of the gate to not compare with recent first term presidencies they are certainly high enough to lead the country and influence the national congress. Yet, unemployment may threaten to drag down the president’s approval ratings as the year wears on, especially among those populations that are most vulnerable to unemployment, namely: youth (14 to 24 years old), women, those with only an elementary school education or less, those earning less than two minimum salaries, and of course, the unemployed. In all of these segments, Bolsonaro’s excellent ratings fall below the national average of 32%.

·      Youth: 31%

·      Women: 28%

·      Elementary school education or less: 29%

·      Less than two minimum salaries: 26%

·      Unemployed: 22%

It is critical to take into consideration that current unemployment is concentrated in Brazil’s largest cities, and especially among these vulnerable segments of the population.

DataFolha’s numbers indicate that unemployment may play a direct role in dragging down presidential approval, especially in light of the government’s failure to recognize this policy challenge and offer sensible solutions. Indeed, Minister Guedes’ version of supply side economics and trust in fiscal consolidation may pan out in the long term but there is a threat that his belt tightening policies and social security reform could produce higher levels of unemployment in the short run. Indeed, Brazilian investment bank BTG Pactual forecasts that unemployment will not drop below 10 percent until 2021. President Bolsonaro and his PSL continue to dance to the drum beat of blaming the Workers Party and Brazilian social democracy for corruption and crime but they do so at their own electoral risk. Persistent high unemployment now poses a significant political risk, one capable of stopping Bolsarono’s emergent conservative-nationalist movement in it tracks.

March 2019 Brazil Political Risk by Mark Langevin

March 2019 Brazil Risk.png

The March 2019 Brazil Risk Score Is 6

and Represents Moderate Country Risk

·       Misery Index/Stable Performance

·       Formal Employment Index/Improved Performance

·       Economic Activity Index/Stable Performance

·       Homicide Rate/Stable Performance

·       Presidential Approval/Stable Performance

The March 2019 Brazil Risk Score of 6 represents improvement from the February score, largely because of the stability of the measures and the notable increase in the formal employment index (for February). The Economic Activity Index reports the January measure and the Homicide measure remains the December 2018 calculation. Globo’s Monitor da Violência has not been updated from its last December 2018 measure, but state by state reports show an uneven pattern of improved performance in some states, such as Mato Grosso do Sul and Pernambuco but poor performance is Rio de Janeiro. For now we are scoring the homicide rate as stable, 1.8 per 100,000 until more accurate data is made public. Last, the presidential approval rating is largely unchanged when reporting the Excellent and Regular measures taken together. For now we score approval as stable but the tendency is falling Excellent ratings and increases in the Poor rating portion.

The high score of 6 returns out performs the average since July and represents a significant increase over February-based on the stability of the measures and notable increase in formal employment during February. The series mean average since July 2018 is 4.89.

Access the Brazil Political Risk Dashboard here.

February 2019 Brazil Political Risk Score by Mark Langevin

FEB 2019 BRRisk.png

The February 2019 Brazil Risk Score Is 4

And Represents High Country Risk

·       Misery Index/Stable Performance

·       Formal Employment Index/Poor Performance

·       Economic Activity Index/Stable Performance

·       Homicide Rate/Stable Performance

·       Presidential Approval/Stable Performance

The February 2019 Brazil Risk Score of 4 represents higher risk than last month because of the poor performance of formal job creation lack of improvement in economic activity, the homicide rate and presidential approval. The Central Bank’s measure of economic activity showed a very modest increase but this was canceled out by poor job creation. Globo’s Monitor da Violência has not been updated from its last September 2018 measure, but state by state reports show an uneven pattern of improved performance in some states, such as Mato Grosso do Sul and Pernambuco but poor performance is Rio de Janeiro. For now we are scoring the homicide rate as stable, 1.8 per 100,000 until more accurate data is made public. Last, the presidential approval rating is unchanged. Presidential approval was not measured in February, and President Bolsonaro spent much of the month recuperating from surgery. Now that his is back to work and his congressional agenda under intense deliberation it is likely that polls will be conducted in the coming month. For now we score approval as stable.

The high score of 4 returns to the recent mode observed between October to December 2018 and lies close to the series average of 4.75 since July 2018.