Bizarre labour costs skyrocket in Brazil

Published on Tip News’s website, June 01, 2012.

When Brazil sought inspiration in fascist Italy`s labor legislation approximately 70 years ago, the country`s social and economic profile was very different than today`s. In the 1940s and 1950s, Brazil had mostly an agricultural economy and a rural population. Industrialization was incipient and the new urban labor required a considerable degree of legislative protection, with a view to avoiding abuses and promoting human rights.

Thus, it was in this context that the Consolidation of Labor Laws (CLL) was enacted originally in 1943, during the fascist dictatorship of President Getúlio Vargas and followed the creation of the specialized labor courts in 1939.

In the years that followed and Brazil evolved economically, socially and politically, the country`s labor laws not only failed to be adjusted to the new times, but also incorporated an enormous element of political demagoguery which substantially increased the burden of employers (and society), without necessarily benefitting the employees.

The situation was further aggravated by the often non-juridical bias existing in the labor courts in favor of the perceived interest of the employees, in detriment to society at large. This is so because too many awards have been granted based on the capacity of the employer to pay rather than at the legal merits of a given case. Juridical insecurity ensued.

The costs deriving from such a dreadful combination gradually added to the removal of important elements of international competitiveness from the Brazilian economy, together with other negative features, such as massive exchange appreciation, high interest rates and an insane tax regime.

A recent study conducted by the Getúlio Vargas Foundation, a learning institution, together with the National Confederation of Industries (CNI), found that the Brazilian costs of a worker, in average, may represent 2,83 times – or 183% – of the received salary, over a period of 12 months of a given labor contract.

These additional costs derive from a number of mandatory legal accessory obligations, either in the CLT or in sundry other sparse legislation enacted over the years, negotiated benefits, bureaucratic requirements and management of labor relations.

In accordance with the aforementioned study, the employee only receives directly or indirectly about 60% of the total disbursements an employer bears to hire and keep an employee in Brazil. The rest will get lost along the way, a good part of it in government income.

This disastrous situation has demanded substantial adjustments for a long time now, with a view to reducing the costs for society and increasing the receipts of the employees. Brazil has now the 6th largest economy in the world and one of the most effective networks of social assistance measures in the world.

Thus, it is to be hoped that a government led by the Worker`s Party (PT) would have the moral authority and the political mandate to promote such reforms from which the whole country would undoubtedly benefit.