Federal Spending on Labor Market Programs in Brazil
The objective of labor programs is to improve the efficiency of the labor market inmatching labor demand with labor supply. One way of doing this is by reducing the costborn by workers during the transition between jobs with unemployment insurance...
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| Format: | Policy Note |
| Language: | English |
| Published: |
World Bank, Washington, DC
2021
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| Online Access: | http://documents.worldbank.org/curated/en/841291614373144982/Federal-Spending-on-Labor-Market-Programs-in-Brazil-Background-Chapter-of-the-2018-Expenditure-Review-A-Fair-Adjustment-Efficiency-and-Equity-of-Public-Spending-in-Brazil http://hdl.handle.net/10986/35230 |
| Summary: | The objective of labor programs is to
improve the efficiency of the labor market inmatching labor
demand with labor supply. One way of doing this is by
reducing the costborn by workers during the transition
between jobs with unemployment insurance andjob-search
support. In Brazil some labor programs have the additional,
explicit objectiveof supplementing the income of low-wage
workers. The provision of labor programs inBrazil is carried
out across different ministries and agencies. The bulk of
expendituresare made in the form of unemployment cash
benefits. Wage supplements and otheractive labor market
programs are administered by the Ministry of Labor.
Trainingprograms for the unemployed are financed by the
Ministry of Education, while somesmaller social programs
with a labor support objective are managed by the Ministry
ofSocial and Agrarian Development. This chapter of the
expenditure review analyzes the volume, trends and
efficiency in labor program expenditures in Brazil. It also
benchmarks labor program expenditure against comparable
spending indicators from other countries, in terms of their
function, magnitude and resource allocation. As part of a
public expenditure review, the laborprograms covered in this
chapter are those that are financed directly from the
FederalGovernment’s budget and tracked in budget execution
reports from the BrazilianTreasury. So, for example, the
chapter covers programs like the Seguro Desemprego,Abono
Salarial and PRONATEC. Government mandated programs that are
financed byemployers without going through the state budget,
such as the Fundo de Garantia por Tempo de Serviço (FGTS),
Salário Família and other programs are not analyzed in terms
of expenditure trends. The chapter shows that there is
significant scope to improve the efficiency and
effectiveness of spending on labor market programs. Brazil’s
budget expenditure on labor market programs is lower than in
OECD countries, but higher than that of comparable economies
in Latin America. Spending is significantly higher when
offbudget programs mandated by the federal government are
taken into account. Budget allocations are tilted towards
'passive' income support programs, although the
share of spending on ‘active’ programs has been rising
rapidly in recent years. The lack of emphasis on active
labor market support—particularly job search assistance and
intermediation—is a weakness that limits the
government's ability to respond effectively to rising
levels of unemployment and to contain spending on passive
labor market support. Furthermore, there is an incoherent
overlapping of programs with similar functions which adds to
perverse incentive effects and fiscal pressures. Indeed, the
adjustment formula and extensive use of the statutory
minimum wage as a policy parameter has a ratchet effect on
fiscal obligations from across the social protection
‘system’ (including pensions and social assistance). The
chapter shows that significant efficiency gains and
expenditure savings could be obtained from rationalizing
programs with similar functions. The document is a
Background Chapter for the report Background Chapter for A
fair adjustment : efficiency and equity of public spending
in Brazil : Volume 1 – Overview (report no. 121480). |
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