Publication: COVID-19, Labor Market Shocks, Poverty in Brazil: A Microsimulation Analysis
Loading...
Published
2020-07-31
ISSN
Date
2020-08-20
Author(s)
Editor(s)
Abstract
In this note we estimate the short-term economic impact of the COVID-19 crisis on Brazilian families vis-a-vis labor shocks. The analysis, using a microsimulation model which incorporates subnational shocks from a computable general equilibrium growth model, shows that over 30 million workers in Brazil may see significant reductions in their labor income in 2020 due to the COVID-19 pandemic. Two-thirds of these workers are informal workers or own-account workers, groups without access to unemployment protection. These household shocks would reduce average per capita income by 7.6 percent, with the largest impact on the second and third quintiles of the income distribution. These income shocks are inequality-increasing: without any mitigation measures, inequality would increase by 4 percent. The country’s first line of defense, its existing unemployment insurance system, reduces the income shock to 5.3 percent. Even so, an additional 8.4 million Brazilians could fall into poverty. The policy responses announced by the government, and particularly the Auxilio Emergencial (AE) transfer, have the potential to fully absorb the labor income shock for the poorest 40 percent and reduce poverty. Yet, these results reflect annualized income, obscuring the sharp reduction in monthly income if demand shocks persist after the AE ends. Looking towards the next phase of the response, considering extensions of AE that are either less generous or more restricted provide a fiscally prudent approach for continuing to support Brazil’s most vulnerable.
Link to Data Set
Citation
“Cereda, Fabio; Rubiao, Rafael M.; Sousa, Liliana D.. 2020. COVID-19, Labor Market Shocks, Poverty in Brazil: A Microsimulation Analysis. © World Bank. http://hdl.handle.net/10986/34372 License: CC BY 3.0 IGO.”
Digital Object Identifier
Associated URLs
Associated content
Other publications in this report series
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication A Reversal in Shared Prosperity in Brazil(World Bank, Washington, DC, 2020-07-31)The Coronavirus (COVID-19) pandemic arrived in Brazil while the poorest forty percent of the population was still recovering from the 2014-2016 crisis. After boosting Latin America’s reduction in poverty and inequality for the previous decade, Brazil’s 2014-2016 crisis and recovery are a stark departure from the previous decade as Brazil’s inclusive growth turned significantly regressive. As millions of jobs were lost, Brazil’s expansive social protection system was unable to effectively serve as a countercyclical protection system. This note analyses the recently released household data from 2012 through 2019 to better understand the severity of the 2014-2016 crisis across income groups, as well as the uneven and slow recovery experienced following this crisis.Publication Employment in Crisis(Washington, DC: World Bank, 2021-06-17)A region known for its volatility, Latin America and the Caribbean (LAC) has suffered severe economic and social setbacks from crises—including the COVID-19 pandemic. These crises have taken their toll on careers, wage growth, and productivity. Employment in Crisis: The Path to Better Jobs in a Post-COVID-19 Latin America provides new evidence on the effects of crises on the region’s workers and firms and suggests several policy responses that can bolster long-term and inclusive economic growth. This report has three key findings. First, crises lead to persistent employment losses and accelerate structural changes away from the formal sector. This change occurs more through reductions in the creation of formal jobs than through job destruction. Second, some workers recover from crises, while others are permanently scarred by them. Low-skilled workers can suffer up to a decade of lower earnings caused by crises, while high-skilled workers rebound fast, exacerbating the LAC region’s high level of inequality. Formal workers suffer smaller employment and wage losses in localities with higher rates of informality. And the reduced job flows caused by crises decrease welfare, but workers in localities with more job opportunities, whether formal or informal, bounce back better. Third, crises’ cleansing effects can increase efficiency and productivity, but these effects are dampened by the LAC region’s less competitive market structure. Rather than becoming more agile and productive during economic downturns, protected sectors and firms gain market share and crowd out others, trapping valuable resources. This report proposes a three-pronged mix of policies to improve the LAC region’s responses to crises: • Create a more stable macroeconomic environment to smooth the impacts of crises, including automatic stabilizers such as unemployment insurance and short-term compensation programs; • Increase the capacity of social protection and labor programs to respond to crises and coalesce these programs into systems that complement income support with reemployment assistance and reskilling opportunities; and • Tackle structural issues, including the lack of product market competition and the spatial dimension behind poor labor market adjustment—a “good jobs and good firms” agenda.Publication Inequality Stagnation in Latin America in the Aftermath of the Global Financial Crisis(World Bank Group, Washington, DC, 2014-12)Over the past decade (2003-12), Latin America has experienced strong income growth and a notable reduction in income inequality, with the region's Gini coefficient falling from 55.6 to 51.8. Previous studies have warned about the sustainability of such a decline, and this paper presents evidence of stagnation in the pace of reduction of income inequality in Latin America since 2010. This phenomenon of stagnation is robust to different measures of inequality and is largely attributable to the impact of the Global Financial Crisis on Mexico and Central America, where inequality rose after 2010 as labor income recovered. Moreover, this paper finds evidence that much of the continuation of inequality reduction after the crisis at the country level has been due to negative or zero income growth for households in the top of the income distribution, and lower growth of the incomes of the poorest households. The crisis also highlighted weaknesses in the region's labor markets and the heavy reliance on public transfers to redistribute, underscoring the vulnerability of the region's recent social gains to global economic conditions.Publication Hungary : Long-term Poverty, Social Protection, and the Labor Market, Volume 1. Main Report(Washington, DC, 2001-04)This report documents the emergence of a group of long-term poor in Hungary. While growth will continue to be necessary to create well-paying jobs that would enable people to escape poverty, the long term poor are not likely to benefit from growth since they are detached from the labor market, socially excluded, and in many cases, facing discrimination which keeps them from reintegrating into the labor market. The long-term poor in Hungary are comprised of several distinct social groups: the homeless, rural population particularly those living in micro-communities, unemployed or withdrawn from the labor market, households with more than three children, single parent families, single elderly females, and the Roma. A third of the long-term poor are of Roma ethnicity, even though this group is only approximately 5 percent of the Hungarian population. The analysis of the labor market confirms the connection between long-term unemployment and long-term poverty. One of the messages of this report is that the Roma need good-paying jobs first and foremost. Many Roma villages are characterized by a cycle of dependency on state transfers. Reinsertion programs are needed to break this cycle. In the medium term, emphasis on providing high-quality general education to the Roma is needed. These challenges for Hungary are complicated by decentralization, which may lead to unequal treatment of the poor, with less financing available where social programs are most needed.Publication The Impact of Financial Crises on Labor Markets, Household Incomes, and Poverty : A Review of Evidence(World Bank, Washington, DC, 2002-01)The 1990s have witnessed several financial crises, of which the East Asia and Mexico tequila crises are perhaps the most well-known. What impact have these crises had on labor markets, household incomes, and poverty? Total employment fell by much less than production declines and even increased in some cases. However, these aggregates mask considerable churning in employment across sectors, employment status, and location. Economies that experienced the sharpest currency depreciations suffered the deepest cuts in real wages, though deeper cuts in real wages relative to Gross Domestic Product (GDP) were associated with smaller rises in unemployment. To some extent, families smoothed their incomes through increased labor force participation and private transfers, though the limited evidence available suggests that wealthier families were better able to smooth consumption. The initial impact of the crises was on the urban corporate sector, but rural households were affected as well and in some instances suffered deeper losses than did urban families. School enrollment declined, especially among poorer families, as did use of health facilities, but the impact on children's nutrition levels appears to vary. Crises have typically proved short-lived, but whether households plunged into poverty during a crisis is able to recover as the economy does remain an open question.
Users also downloaded
Showing related downloaded files
Publication The Design and Sustainability of Renewable Energy Incentives : An Economic Analysis(Washington, DC: World Bank, 2015)Rapid urbanization and economic growth, new demographic trends, and climate change are key challenges that developing countries must face as they strive to meet growing energy demand. The main objectives of this study are to offer: (a) a global taxonomy of the economic and financial incentives provided by renewable support schemes and (b) an economic modeling of the sustainability and affordability of such support schemes. In an attempt to contribute to the lively debate, this study provides a global taxonomy of the economic and financial incentives provided by renewable energy (RE) support schemes. It summarizes economic models of the sustainability and affordability of such support schemes, alongside operational advice on how the regulatory design may need to be modified to minimize the impact on the budget and be affordable to the poor, as well as how to identify and fill the financing gap. This analytical framework: (a) differentiates and illustrates tradeoffs among local, regional, and national impacts, in the short and long run; (b) captures distributional impacts (since subsidies to cover the incremental costs of RE may have very different beneficiaries); and (c) captures externalities and compares (where possible) alternative projects based on equivalent output and cost (comparing, for example, RE and energy efficiency projects against those using fossil fuels). The report is organized as follows: chapter one gives introduction. Chapter two presents the analytical framework that underpins the case studies, and provides the background for the principal research hypothesis of this report, which is better attention to the principles of economic analysis and market efficiency leads to more sustainable and effective policies. Chapter s three to ten present country case studies for Vietnam, Indonesia, Sri Lanka, South Africa, Tanzania, Egypt, Brazil, and Turkey. The conclusions of the study are presented in chapter eleven.Publication Reclaiming the Lost Century of Growth: Building Learning Economies in Latin America and the Caribbean(Washington, DC: World Bank, 2025-06-06)Update: The Spanish version of the full book was published on September 9, 2025. Latin America and the Caribbean has lost not decades but a century of growth due to its inability to learn—to identify, adapt, and implement the new technologies emerging since the Second Industrial Revolution. Superstars like Argentina, Chile, and Uruguay fell behind peers like France and Germany, while the entire region retrogressed in industries it once dominated and was unable to take advantage of new opportunities that propelled similarly lagging countries to high-income status. The report shows that this remains the case today as the region’s firms continue to lag in assimilating new technologies. However, it argues that Latin America and the Caribbean can reclaim the lost century by building learning economies, creating the human capital, institutions, and incentives needed to increase the demand for knowledge, facilitate the flow of new ideas, and foment the process of experimentation.Publication Development Economics as Taught in Developing Countries(World Bank, Washington, DC, 2015-12)This paper uses a combination of survey questions to instructors and data collected from course syllabi and examinations to examine how the subject of development economics is taught at the undergraduate and masters levels in developing countries, and benchmark this against undergraduate classes in the United States. The study finds that there is considerable heterogeneity in what is considered development economics: there is a narrow core of only a small set of topics such as growth theory, poverty and inequality, human capital, and institutions taught in at least half the classes, with substantial variation in other topics covered. In developing countries, development economics is taught largely as a theoretical subject coupled with case studies, with few courses emphasizing data or empirical methods and findings. This approach contrasts with the approach taken in leading U.S. economics departments and with the evolution of development economics research. The analysis finds that country income per capita, the role of the state in the economy, the education level in the country, and the involvement of the instructor in research are associated with how close a course is to the frontier. The results suggest there are important gaps in how development economics is taught.Publication Digital Africa(Washington, DC: World Bank, 2023-03-13)All African countries need better and more jobs for their growing populations. "Digital Africa: Technological Transformation for Jobs" shows that broader use of productivity-enhancing, digital technologies by enterprises and households is imperative to generate such jobs, including for lower-skilled people. At the same time, it can support not only countries’ short-term objective of postpandemic economic recovery but also their vision of economic transformation with more inclusive growth. These outcomes are not automatic, however. Mobile internet availability has increased throughout the continent in recent years, but Africa’s uptake gap is the highest in the world. Areas with at least 3G mobile internet service now cover 84 percent of Africa’s population, but only 22 percent uses such services. And the average African business lags in the use of smartphones and computers as well as more sophisticated digital technologies that catalyze further productivity gains. Two issues explain the usage gap: affordability of these new technologies and willingness to use them. For the 40 percent of Africans below the extreme poverty line, mobile data plans alone would cost one-third of their incomes—in addition to the price of access devices, apps, and electricity. Data plans for small- and medium-size businesses are also more expensive than in other regions. Moreover, shortcomings in the quality of internet services—and in the supply of attractive, skills-appropriate apps that promote entrepreneurship and raise earnings—dampen people’s willingness to use them. For those countries already using these technologies, the development payoffs are significant. New empirical studies for this report add to the rapidly growing evidence that mobile internet availability directly raises enterprise productivity, increases jobs, and reduces poverty throughout Africa. To realize these and other benefits more widely, Africa’s countries must implement complementary and mutually reinforcing policies to strengthen both consumers’ ability to pay and willingness to use digital technologies. These interventions must prioritize productive use to generate large numbers of inclusive jobs in a region poised to benefit from a massive, youthful workforce—one projected to become the world’s largest by the end of this century.Publication Enhancing Crop Insurance in India(World Bank, 2011-04-01)The broad structure of Modified National Agricultural Insurance Scheme (mNAIS), the main crop insurance program in India, is technically sound and appropriate in the context of India. The NAIS is based on an indexed approach, where average crop yield of an insurance unit, or IU, (i.e., block) is the index used. The insurance is mandatory for all farmers that borrow from financial institutions, though insurance cover is also available to non-borrowers. The actual yield of the insured crop (as measured by crop cutting experiments) in the IU is compared to the threshold yield. If the former is lower than the latter, all insured farmers in the IU are eligible for the same rate of indemnity payout. Individual crop insurance will have been prohibitively expensive, or even impossible, in a country such as India with so many small and marginal farms. Further, the method of using an 'area based approach' has several other merits and, most importantly, it mitigates moral hazard and adverse selection. This report offers detailed analysis of a number of technical and operational issues which should be addressed if mNAIS is to be implemented. GOI is to be complemented on its bold vision of the future of agriculture insurance through modifying NAIS, an action which, if well implemented, has the potential for significant economic and political economy gains. The policy note World Bank (2010) supported this vision and offered specific policy recommendations for mNAIS, with reference to the Joint Group report (2004). This technical report is intended as a complement to World Bank (2010) and also to the previous technical report World Bank (2007a), by offering detailed technical analysis of a number of issues that will be critical to the success of mNAIS.