Falling inflation fuels income growth, experts say

O labor market has shown growth in 2022, with an increase in occupancy from more jobs generated and average income rising again, after a period of decline resulting from the post-pandemic. And the resumption of income growth in Brazil depends especially on the continuous decline in inflation according to experts CNN Brasil Business .

According to data from Continuous Pnad (Continuous National Household Sample Survey) in September, the usual real income grew for the second consecutive month, reaching R$ 2,713 in the quarter. The fall in prices causes this income to advance significantly above inflation, according to Cosmo Donato, economist at LCA Consultoria and specialist in the labor market.

“Because Pnad is a three-month moving average, we are seeing a buffer on average income, coming directly from the fall in inflation, and this should extend until the end of this year”, highlighted the economist.

Donato pointed out that the job market is lagged in relation to economic activity and, therefore, the positive surprises of recent months and weeks on GDP, the service sector, industry and other indicators take a while to manifest on the branch.

“We have arrived at a time when, in addition to the composition effect being less negative and inflation allowing real increases in wages, we have the activity contributing to the heating up of the job market”, he said.

“We see this in the significant advance of occupation and upward pressure on wages. So we are entering a period that is a kind of window of opportunity in which there is room for higher salaries, both because of inflation and the composition effect and because of the lagged effects of the heated economy. This should last at least until the middle of next year, which is when the economy starts to slow down and negatively affects wages,” he added.

Daniel Duque, economist at FGV-Ibre, explained that the composition effect refers to the consequences of income variations on people who are in the job market.

According to him, there was an increase in income over the hours worked during the pandemic period, and a negative contribution after the resumption of services, with fewer restrictions due to Covid-19.

“The positive composition effect occurred among those who were able to work from home, or with distancing measures in the industry and some sectors, but many people had been left out of the job market. Therefore, those who managed to stay working during the pandemic had a higher income,” he said.

“As the occupation returned, there was a negative composition effect, with many informal workers, people accepting to return to the job market earning less, a lot of trade, etc. This made the average income fall, so those who were working had a lower income,” he continued.

Duque said that now the scenario is different, with the composition effect no longer negatively affecting the job market, but with more people busy – unlike what happened in 2020, in the first year of the pandemic in which many people were laid off.

The number of employed persons broke a new record in the Pnad historical series, which began in 2012, totaling 99 million persons.

“The composition effect was contributing negatively but is now marginally positive, and this will continue or stay close to zero in the medium term”, added Duque.

For Hélio Zylberstajn, professor of economics at the University of São Paulo, the change in the composition effect also involves an expansion in the formal labor market, with more people employed and with better wages.

“Those who are joining now earn on average more than those who were already working. But, why? Because the new jobs are less informal. A good part of these formal workers are employers or self-employed with CNPJ, and this increases income within this broader concept of formality”, he pointed out.

Zylberstajn also reinforced that the current period tends to collude with a more heated market, with commercial dates that move the economy and are job drivers.

“The job market is showing surprising momentum. The end of the year is always a good time to work, with Children’s Day, Black Friday and Christmas causing a very active trade and, thus, providing a growth in services and industry, which have to meet the demand”

The economist stated that until November the job market should remain heated, starting to decelerate from December onwards. For the coming year, “many questions still linger, with decisions on interest maintenance, government spending and possible new economic measures”, according to the professor.