Brazil generates fewer jobs than it did a year ago, and its unemployment rate is rising. In short, the country’s job market has slowed down, as a result of the rise in the national economy’s basic interest rate, known as Selic.
On Thursday (27), the Brazilian Institute of Geography and Statistics (IBGE, in Portuguese) released the country’s unemployment rate for the quarter ending in January: 6.5%. It is higher than the rate recorded in the quarter ending in December (6.2%) and that recorded up to November (6.1%).
The November interest rate was the lowest ever recorded by IBGE, which has been collecting data since 2012. It was achieved after a series of eight consecutive falls. Before the current increase, the unemployment rate in Brazil had last risen between the quarters ending in February and March 2024.
On Wednesday (26), the Ministry of Labor and Employment released data from the General Register of Employed and Unemployed (Caged, in Portuguese), which confirms the worsening scenario. In January, 137,000 job positions were recorded. In the same month last year, however, there were 173,000 – a drop of more than 20%.
When presenting this data, Minister Luiz Marinho (Workers’ Party) blamed interest rates. “I believe that [the fall in the pace of new job positions] is an effect of higher interest rates,” he said. “The rise inhibits investment and strangles the public budget.”
The Selic factor
The Selic rate is a benchmark for the Brazilian economy. It is also the Central Bank’s main instrument for controlling inflation. When it rises, loans and financing tend to become more expensive, which diminishes purchases and investments, curbing inflation. In return, economic growth tends to be affected.
The Selic rate has been rising in Brazil since September last year. At that time, it was 10.5% per year. This increase intensified in December. Today, the Selic is at 13.25%. According to the Central Bank, it should rise again in March.
Economist Weslley Cantelmo, president of the Economias e Planejamento Institute, says that the consequences of this increase on the labor market in Brazil are obvious. According to him, with the Selic rate on the rise, entrepreneurs stop investing, already betting on a slowdown in the economy. As a result, projects don’t get off the ground and the jobs they would generate don’t arise.
José Luis Oreiro, economist and professor at the University of Brasilia (UnB, in Portuguese), confirms the occurrence of this effect. He pointed out that, in the last quarter, the total number of employed people in Brazil fell by 0.6% – a drop of 641,000.
According to him, this effect will become more pronounced over time. “The strongest increase in interest rates began in December. This will only have an impact in mid-2025,” he explained. “But this quarter’s indicator already shows that the job market tends to worsen due to the effects of more contractionary monetary policy.”
“Employment is less flexible, in other words, it takes longer to react to the fall in economic activity,” confirmed economist Juliane Furno, professor of economics at the State University of Rio de Janeiro (UERJ, in Portuguese). “So, unlike other sectors, which already have a negative rate, job creation has only slowed down. But it is already an important indicator, interrupting a positive trajectory.”
Other factors
Pedro Faria, economist with a PhD in History, adds another factor to the equation for the worsening job market. According to him, especially in 2023, the government of President Luiz Inácio Lula da Silva (Workers’ Party) spent more to solve problems left by his predecessor, Jair Bolsonaro (Liberal Party). The “fiscal impulse”, he said, has been reduced over time. Economic activity has slowed down since.
“I don’t think the Selic rate is the only culprit,” he said. “The [Lula] government started to spend less on precatory payments, for example. With the decrease in fiscal impetus, there is a slowdown.”
Miguel de Oliveira, economist and executive director of the National Association of Finance, Administration and Accounting Executives (Anefac, in Portuguese), said that the distrust of market agents regarding decisions taken by the Executive power also hinders the Brazilian economy.
“There is discontent with the government’s actions. Some people see the government as a bit lost,” he said. “This has repercussions for the economy, making it more difficult to find a job, which, consequently diminishes workers’ incomes.”
Good balance
Mauricio Weiss, economist and professor at the Federal University of Rio Grande do Sul (UFRGS, in Portuguese), acknowledged the signs of a slowdown, but pointed out that the scenario is still positive, with low unemployment and continued job creation.
“It’s natural that the generation of new jobs will be reduced because the country is approaching a situation of full employment. At the end of the day, there will come a time when it isn’t possible to create any more jobs,” he explained.
Weiss also recalled that, at the beginning of the year, it is common to see layoffs of temporary workers hired at the end of the previous year. Therefore, the annual fall in the unemployment rate is more important than the recent rise, he concluded.
In the quarter ending January 2024, unemployment was 7.6%, 1.1 percentage points higher than now. The country’s current unemployment rate, although higher than at the end of last year, is the lowest in history for January.
