Social protection and employment: Brazil needs to improve conditions

A recent study by the World Bank pointed to the need for Brazil to reformulate social protection systems, such as retirement and work. The institution points out that systems can act more effectively, as well as promote social inclusion and shared prosperity.

“Despite the slow recovery of the labor market after the economic crises in Brazil, the implementation of adequate policies can allow the country to take advantage of changes in the world of work, new opportunities for human capital formation and recent developments in technology and systems of providing services to rebuild better than before”, highlights the institution in the report, entitled “Social Protection for the Brazil of the Future”.

According to the World Bank, it is about following a path that has already been trodden. The authors point out that Brazil has made significant advances in terms of reducing poverty and inequality since its return to democracy in the late 1980s.

“The expansion of social protection policies played an important role in increasing inclusion, coming close to achieving universality in access to education and expanding the use of preventive health services”, cites the World Bank.

Another positive aspect is the development of the Cadastro Único, a unified registry of beneficiaries that uses self-declarations and administrative data. Brazil’s model of providing decentralized social assistance also includes reference centers for social assistance (CRAS) in almost all Brazilian municipalities.

“In the wake of the Covid-19 pandemic, the country has demonstrated its ability to implement efficient mass registration and quickly execute Emergency Aid”, highlights the document.

Covid-19 made system restrictions evident

Despite the advances, Covid-19 has made the restrictions that prevent a large part of the population from benefiting from economic growth more evident. The World Bank points out that the reduction of poverty has stagnated in the last decade and the rates are higher in the North and Northeast, among children and people of African descent.

The institution also points out that the levels of human capital of Brazilian children are lower than those of other upper-middle-income countries in Latin America and the Caribbean. Variations can be explained by different learning outcomes between municipalities and also by differences in race, gender and family income.

According to the multilateral body, this inequality translates into strong differentials in employment rates and income, with girls and children from ethnic minorities and poor areas being more likely to go into informality. “Social protection and labor systems play a key role in overcoming all these structural barriers that block the benefits of economic growth.”

Global trends, such as demographic aging, climate change and new ways of working, will generate new needs and challenges for Brazilians to enjoy shared prosperity in the future.

The World Bank projects that, in 2040, the majority of the Brazilian population will be of working age, but cannot be considered young. Many will have to face the labor market with low education. The number of adults over 65 will double, making the social security situation unsustainable, even with the recent reform.

Another impact is likely to come from the effects of climate change. According to the agency, more frequent natural disasters and lower agricultural productivity are expected. At the same time, the decline of carbon-intensive industry will accelerate a structural shift towards services. And technological change and automation must change the way companies obtain and use labor.

“Brazil’s capacity to navigate through these structural changes will depend on its capacity to adapt the set of institutions, programs and expenses, mainly in the area of ​​social protection and labor market policies”, quotes the bank.

Renewal of social protection and labor systems

For the World Bank, the renewal of social protection and labor systems in Brazil will be fundamental for the country to make the transition to a more inclusive, prosperous and less unequal society. For this, the institution points out that social protection systems need to be designed in such a way as to:

• Promoting equity by helping the poor out of poverty and protecting their human capital from being depleted in case of shocks;
• Leveraging opportunities, enabling productive work;
• Foster resilience by protecting the vulnerable against the impacts of different shocks, including those stemming from unemployment or old age; It is
• Greater efficiency and sustainability, ensuring the effective and efficient provision of services and benefits.

The organization considers that the main social protection and labor programs in Brazil already aim to achieve many of these results, but that they are limited in terms of progressivity, incidence and intergenerational equity.

Four-fifths of Brazilian social protection expenditures are allocated to programs that mainly affect the elderly population. It is a number very close to that of countries in the Organization for Economic Co-operation and Development (OECD).

Conditional cash transfer programs also remain the most targeted to the poorest of the benefits offered by the country and, following recent temporary increases in the breadth of their benefits, the impact in terms of relief has been strengthened.

Other programs, however, including formal sector retirement, disproportionately benefit higher-income households, albeit to varying degrees. The financial institution considers that, at the moment, the tax benefit system in Brazil is only slightly redistributive.

Another criticism made by the World Bank is that few social protection programs promote human capital and opportunities, despite spending being at levels close to those of high-income economies.

“Competence development programs and labor intermediation services receive only a minimal share of these expenses and serve, in large part, formal workers. The portion allocated to services has also been falling over time, since the 2014 crisis and the fiscal adjustment”, points out the institution.

Brazil needs to implement reforms, says World Bank

According to the World Bank, as new ways of working emerge, it will be essential to develop ways for workers to continue to learn and be trained while working full-time, as well as to facilitate low-cost job transitions.

The institution also recalls that despite the high expenses with income programs for the elderly, there is no strategy to reduce the burden on families who care for the elderly, which should increase significantly as the dependency rates (of the elderly) increase.

The World Bank also considers that the current design and spending trajectory of the pension system are unsustainable, even though it was the subject of a recent reform in 2019. A new change in pension rules would be necessary before 2040.

The document cites that contributory and non-contributory pensions operate in isolation from each other, but together they undermine the incentives of many individuals to contribute or compensate little for those who contribute the most.

Another problem is the proliferation of subsidized pension schemes for the self-employed, most of which provide benefits at a fraction of the cost of wage earners and are increasingly co-opted by high earners.

There are also thousands of pension schemes offered by subnational governments (states and municipalities) that guarantee privileged pension benefits and represent a large portion of their total expenditures. “Unless these schemes are reformed, they are likely to cause a reallocation of subnational spending to other priority areas in the future.”

The World Bank text also suggests that the evolving nature of work further challenges the relevance and effectiveness of current instruments for dealing with short-term shocks. Thus, income protection programs need to be tailored for future generations of workers and be more equitable.

Brazil will also need to increase, according to the bank, its capacity to provide social protection services, since, according to the multilateral body, money alone is not capable of dealing with multidimensional vulnerabilities. “The social protection system in Brazil is currently dominated by cash transfers, which only solves part of the structural challenges.”

The bank highlights that, although Brazil has managed to develop a decentralized structure for the provision of services, funding for non-monetary benefits has been falling over time, probably due to the bias in favor of monetary incentives. Among the examples cited by the institution are:

• Insufficient active labor market policies;
• Gradual elimination of productive inclusion programs;
• Unsatisfactory funding to expand child care; It is
• The lack of policies to address the long-term care needs of an aging population.