April 20, 2017
On the night of March 31, Brazilian President Michel Temer passed a controversial law.1 It grants Brazilian companies the right to outsource employees for any job and authorizes temporary contracts of up to nine months. For Brazil, this was the start of a revolution in redefining a rigid and costly labor market that offers strong protections to formally employed workers.
But the Brazilian revolution is not limited to labor laws: It includes far-reaching shifts such as upcoming pension reforms and a more outward-facing approach to trade. The goal? Creating a leaner, more efficient model of government. The question now: How can Brazil redefine its labor market without jeopardizing recent social gains?
It all starts with steady growth. Over the past twenty years, more jobs and higher wages reduced poverty. Now, on the heels of the country’s worst recession ever (8 percent contraction since 2014), Brazil will need to grow an estimated 3 percent per year just to keep its gains intact.
Things are slowly getting back on the right track. The Central Bank expects growth rates of 0.5 percent in 2017, and 2.5 percent in 2018.2 That said, the government will also have to make some tough cuts. Massive public debt leaves little room for spending as in the past.
The present reality was unthinkable just a few years earlier. Today, more than thirteen million Brazilians are unemployed. Almost four million people who had recently joined the middle class are again living in poverty.3 Although about 113 million people make up Brazil’s middle class4—up 40 percent since 2003—almost five million are deemed vulnerable. If a family crisis hits, they lack the resources to provide for themselves.5 Cutting cost and reforms go hand in hand with strong support for the middle and financially insecure classes.
The phenomenon of the Brazilian middle class—and the example its social policies set for the region—is at a critical junction. Can the country sustain recent gains? What will it take?
In this Spotlight, we argue that the answer to preserving middle class gains lies in addressing three fundamental areas: more modern and flexible labor market standards; quality of education; and increased access to credit and private insurance.
How can Brazil develop an open economic model without sacrificing recent social gains?