Thursday, 15 January 2009

Brazil Labour Costs Rise, Casting Doubts Over Effectiveness of Policies to Ensure Job Stability

Cia. Vale do Rio Doce CEO Roger Agnelli was right: a month ago it was about time to start discussing a flexibilisation of Brazilian labour laws. As the downturn takes the shape of recession, and Finance Minister Mr. Criswell's anti-cyclical policies prove themselves ineffective to reverse the course of the slowdown, Agnelli's proposal only gets more valid.

Labour costs per unit rose 11 percent in November (click on the link to read the official report.) The number, unexpected by most analysts as reported by newspaper Valor Econômico, reflects the rapid and drastic decline in output per unit. Dismissals should have followed the decline in production, but in Brazil firing someone is expensive and often impossible or unfeasible. This number points to a wave of dismissals in the coming months, since companies will be able to meet falling orders with a reduced headcount. The statistics agency showed that those sectors with smaller labour costs per unit were exactly those that fired staff as the crisis unfolded. Cellulose (affected by the derivatives scandal,) leather and shoes, machinery and transport equipment, just to mention a few. Productivity dropped 6 percent in November on a year-on-year basis.

Easy: more dismissals will come this quarter. And no matter how the government cry-babies at it, or how many new measures it implements, or how much from the budget is spent, there are things that are unavoidable during a crisis. Dismissals are an unfortunate way by which companies adjust their cost structure to dribble the impact of a challenging environment. I hope I am wrong, but the Lula administration is the type of government that uses retaliation to force an outcome. I fear for measures that curtail lending to companies just because they are firing people. Are there risks that this can happen? I bet yes.

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