Informality in the Brazilian labour market

Ana Virgínia Moreira Gomes, Ph.D.Professor, Labor Law

Santos Catholic University e-mail virginnia@uol.com.br

Vilma Gil, Ph.D.Professor, Labor LawMackenzie University

Objective:

to examine and develop a critical analysis of the labour conditions of informal workers in the Brazilian LM and evaluate the role of labour laws in the actions against informality

System of Labor Regulation

One Labor law and one system of Labor Courts for the whole country. The Labor Court is competent to judge all the work–related lawsuits (article 114 of the 1988 Federal Constitution). Approximately 2 million labor law suits every year

Federal Constitution, 1988 (Art. 7#) in the Title of Fundamental Rights

CLT, 1943, joins all the legal texts about the individual and collective labor relation. There are 922 articles, besides the complementary laws (over 2000)

Social & economical aspects of Brazilian LM Stability of unemployment at a rate

close to 7.5% Growth of poorer ways of insertion in

the labour market (informal work) Fall of the income from work: during the

90s, the labor’s share of GDP went from 52%, in 1990, to 42% in 1999.

Social & economical aspects of Brazilian LM Accordingly with the Gini coefficient, the

Brazilian degree of income inequality between 2001 and 2005, has decreed 4.6%, from 0.593 to 0.566.

The decline is mostly a result of a decline in the level of inequality of the labor market.

Exception: the formal-informal segmentation.The wage difference between workers with identical characteristics in similar jobs is above 40%.

Barros et al. (2006), Hoffmann (2005; 2006) and Soares (2006).

Social & economical aspects of Brazilian LM The growth of jobs occurred, in its majority,

through formal employment. The annual averages between 2004 and 2005 point a growth of 5.6% of formal workers in the private sector, and, therefore, a retraction of the informality.

In 2007, were registered 51.5% of workers with a formal contract in contrast of 49% in 2003.

Employed persons on the labour market

Informality and the LM Informal economy: irregular employees, self-

employed workers, small informal enterprises employers, domestic workers.

Two major elements present in the labour market: the subordinated labour and self-employed work.

Types of informal work Traditional: in a small production unit,

domestic work, and illegal work

New types: formal employees became consultants, cooperative members, outsourced workers and partners

Informal work, today, does not limit itself to one specific sector of the economy or

to one specific group in the labour market

Evolution of the percentage of workers without registration in labour card registration per years

of study

Most important examples of flexibility

Outsourcing (terceirização)

Employment cooperatives

How can labour law reach those informal workers?

Public Policies

Labour inspection

Workers who had their labour card registered by the action of the labour inspection

Informal economy Labour Law is a link between the formal and informal

labour market.

The cost of a formal contract is associated with the cost of an employment relation, specifically the income tax and the social security contribution - main reason for the choice of informality is to avoid tax and social cost.

Informal economy For example, guaranteeing a low

pension without the obligation of any contribution to the social security system has a negative effect in the formalization process.

The problem here is that this guarantee makes the cost of formalization higher without increasing its gains.

Informal economy Therefore, if the goal is to reduce

informality the way should be increase the benefits of formalization, not increasing its costs. And increase the costs of informality (inspections, fines), without increasing its benefits.