Youth unemployment and the EU-Mercosur agreement – 07/20/2023 – André Roncaglia

Industrialization has underpinned productivity growth in Europe and the United States since the 19th century and was the route by which Japan, South Korea and Taiwan were able to develop. However, the advance of the service sector has generated the loss of industrial jobs, raising fears about the scarcity of good jobs that remunerate the educational investment of young people entering the labor market.

Recent concerns about the Chinese slowdown highlight the country’s high 21% youth unemployment. In Brazil, unemployment for people between 18 and 24 years old is 18% (PNAD/May.23); and more: a report by Ipea (Sept.22) observes a sustained drop in the additional income (wage premium) that a university degree offers in Brazil. The cause was pointed out by the Dieese bulletin (September/22): most of the jobs generated in Brazil require low schooling.

The mismatch between the supply of qualified labor and the creation of complex jobs combines microeconomic aspects —such as the incompatibility between training courses and the regional distribution of job openings— and macroeconomic issues, such as the economic stagnation of the Temer-Bolsonaro agenda and the accelerated deindustrialization of the Brazilian economy.

Generating quality jobs requires an active State policy. In the post-Covid period, economic resilience, productive inclusion and national security have become central guidelines for development policy in several countries, anchored by the mission to reverse the planetary climate emergency. The Chips Act in the US and the “Made in China 2050” are a good illustration of the neomercantilist moment of the global economy.

This new spirit of the times (Zeitgeist) is dominated by unorthodox fiscal and monetary policies, deliberate policies of technological innovation and reindustrialization, selective regulatory pressures (big techs, environment, etc.) and trade wars between rival economies. The game has changed; the Brazilian public debate does not.

In the midst of geopolitical tensions, Brazil (or any emerging country) should not assume an exclusive commitment to a specific pole, especially if this traps us in an outdated paradigm.

In this sense, the agreement between the EU (European Union) and Mercosur tastes like old wine in an old bottle. A consultation on the DataViva platform (Cedeplar/UFMG) reveals that 65% of Brazilian exports to the EU are food and minerals (with an average price of US$ 0.64), while 70% of imports from the EU are machinery, chemical products, vehicles and auto parts (with an average price of US$ 3.10).

A study by Thiago Martinez (IPEA) shows that the free trade agreement between the blocs will accentuate the asymmetry in trade relations. Greater access to European markets for our commodities and the lowering of inputs and consumer goods will be compensated with the advance of Mercosur’s deindustrialization.

For Brazil, the most optimistic estimates of GDP growth (between 0.4% and 0.45% after the agreement has been in force for 20 years) disregard long-term effects on innovation capacity and adjustment costs in the labor market.

The agreement tends to specialize the economy in sectors less prone to innovation, as well as generate wage and welfare losses. As the most benefited sectors (agro and extractives) generate few jobs, a greater precariousness of work in low-skill services is expected.

Another limitation of the agreement with the EU concerns the rules for protecting intellectual property and access to public procurement, measures that may limit the adoption of industrial policies that increase Mercosur’s productive sophistication, benefiting small and medium-sized companies in Brazil.

A sovereign Mercosur is an essential condition for the generation of quality jobs. Latin American youth deserves our boldness at this moment.

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