In its budget proposal for 2020, the Jair Bolsonaro administration suggested ending a policy of raising the minimum wage above inflation—which would directly affect pensions. The decision aims at saving money—as 60 percent of retirement pensions and social security benefits are equivalent to the minimum wage. So, if this base salary was to go up, government spending increases also.

For next year, the government intends not to promote any real gain to the minimum wage—proposing BRL 1,042 (USD 265.31), a 4.21-percent bump from the current BRL 998. This “raise” matches the projected inflation for the year, being good enough only to avoid a loss in purchasing power. It would save the federal administration BRL 7.6 billion—but could have negative impacts on millions of Brazilians.

</span></p> <hr /> <p><img class="alignnone size-large wp-image-16021" src="https://brazilian.report/wp-content/uploads/2019/04/export-4TkCv-1024x683.png" alt="minimum wage gains brazil" width="1024" height="683" srcset="https://brazilian.report/wp-content/uploads/2019/04/export-4TkCv-1024x683.png 1024w, https://brazilian.report/wp-content/uploads/2019/04/export-4TkCv-300x200.png 300w, https://brazilian.report/wp-content/uploads/2019/04/export-4TkCv-768x512.png 768w, https://brazilian.report/wp-content/uploads/2019/04/export-4TkCv-610x407.png 610w, https://brazilian.report/wp-content/uploads/2019/04/export-4TkCv.png 1200w" sizes="(max-width: 1024px) 100vw, 1024px" /></p> <hr /> <h2>How minimum wage raises are set</h2> <p><span style="font-weight: 400;">The rule to promote real gains to the minimum wage was implemented in 2011 and applied to the wages paid in the following year. The idea was to go from a policy which was completely at the president&#8217;s discretion to something more predictable, which would help employers across the country plan ahead for salary bumps. </span></p> <p><span style="font-weight: 400;">The rule determined that salary increases would consider the <a href="https://brazilian.report/money/2019/04/16/brazils-gdp-shrink-q1-2019/">GDP growth</a> from two years prior plus the previous year&#8217;s inflation. It would <a href="https://www.nexojornal.com.br/grafico/2016/01/06/Quantas-cestas-b%C3%A1sicas-cabem-no-sal%C3%A1rio-m%C3%ADnimo">assure</a> that workers would benefit from real gains every year. If the sitting administration were to take that formula into account, the bump from 2019 to 2020 would be 26 percent higher—instead of BRL 1,042, it would rise to BRL 1,050.89.</span></p> <p><span style="font-weight: 400;">This minimum wage calculation was enforced by law until January 2019, but President Jair Bolsonaro indicates he won&#8217;t be extending it.</span></p> <hr /> <p><img class="alignnone size-large wp-image-16027" src="https://brazilian.report/wp-content/uploads/2019/04/export-E7BJu-1024x683.png" alt="minimum wage gains brazil" width="1024" height="683" srcset="https://brazilian.report/wp-content/uploads/2019/04/export-E7BJu-1024x683.png 1024w, https://brazilian.report/wp-content/uploads/2019/04/export-E7BJu-300x200.png 300w, https://brazilian.report/wp-content/uploads/2019/04/export-E7BJu-768x512.png 768w, https://brazilian.report/wp-content/uploads/2019/04/export-E7BJu-610x407.png 610w, https://brazilian.report/wp-content/uploads/2019/04/export-E7BJu.png 1200w" sizes="(max-width: 1024px) 100vw, 1024px" /></p> <hr /> <h2>Before Dilma Rousseff</h2> <p><span style="font-weight: 400;">The Fernando Henrique Cardoso years (1995–2002) were marked by a tough fight to tame inflation—which had been the worst plague on Brazil&#8217;s economy up until the creation of the Brazilian Real. During his first term, interest rates were sky-high (much higher than today) in order to hold consumption and prevent prices from going up. During Mr. Cardoso&#8217;s second term, however, the minimum wage went up—but so did inflation.</span></p> <p><span style="font-weight: 400;">In 2003, Lula reached the presidency amid a shock of trust from investors who feared he would break with the austerity measures in place. During his first four years, however, Lula raised interest rates, showing he wouldn&#8217;t be tolerant with inflation. But from 2006 on, with the more-orthodox Antonio Palocci being replaced by Guido Mantega at the Finance Ministry, the minimum wage raise policy gained steam. </span></p> <p><span style="font-weight: 400;">In 2009 and 2010, the government bet on increasing consumption by increasing salaries, in order to curb the effects of the global economic crisis.</span></p> <hr /> <p><img class="alignnone size-large wp-image-16022" src="https://brazilian.report/wp-content/uploads/2019/04/export-fboED-1024x683.png" alt="minimum wage gains brazil" width="1024" height="683" srcset="https://brazilian.report/wp-content/uploads/2019/04/export-fboED-1024x683.png 1024w, https://brazilian.report/wp-content/uploads/2019/04/export-fboED-300x200.png 300w, https://brazilian.report/wp-content/uploads/2019/04/export-fboED-768x512.png 768w, https://brazilian.report/wp-content/uploads/2019/04/export-fboED-610x407.png 610w, https://brazilian.report/wp-content/uploads/2019/04/export-fboED.png 1200w" sizes="(max-width: 1024px) 100vw, 1024px" /></p> <hr /> <h2>Still very minimum</h2> <p><span style="font-weight: 400;">According to the Brazilian Constitution, the minimum wage must allow workers to fulfill their basic needs with housing, food, education, healthcare, leisure, and transportation. But the Brazilian minimum wage hardly does that. </span><span style="font-weight: 400;">Compared to other countries, Brazilian minimum wage workers still have much less purchasing power. While American unions fight to raise their USD 7.25/hour pay floor, in Brazil, workers get only one-fifth of that.</span></p> <p><span style="font-weight: 400;">Still, the minimum wage is a key element in poverty reduction in Brazil. A <a href="https://www.sciencedirect.com/science/article/pii/S151775801830081X#!">study</a> by researchers Alessandra Scalioni, of the Brazilian Institute of Geography and Statistics, and Celia Kerstenetzkya, of the Federal University of Rio de Janeiro, points out that factors related to the minimum wage (salaries, pensions, social security benefits) were responsible for 38 percent of poverty reduction between 2002 and 2013.</span></p> <p><span style="font-weight: 400;">However, the effectiveness of that policy has faded, as the labor market becomes increasingly more informal.</span></p> <hr /> <p><img class="alignnone size-large wp-image-16020" src="https://brazilian.report/wp-content/uploads/2019/04/export-hgO5n-1024x683.png" alt="mcdonald's wage 15 dollars" width="1024" height="683" srcset="https://brazilian.report/wp-content/uploads/2019/04/export-hgO5n-1024x683.png 1024w, https://brazilian.report/wp-content/uploads/2019/04/export-hgO5n-300x200.png 300w, https://brazilian.report/wp-content/uploads/2019/04/export-hgO5n-768x512.png 768w, https://brazilian.report/wp-content/uploads/2019/04/export-hgO5n-610x407.png 610w, https://brazilian.report/wp-content/uploads/2019/04/export-hgO5n.png 1200w" sizes="(max-width: 1024px) 100vw, 1024px" /></p> <hr /> <p><img class="alignnone size-large wp-image-16019" src="https://brazilian.report/wp-content/uploads/2019/04/export-GHJBo-1024x683.png" alt="oecd wages" width="1024" height="683" srcset="https://brazilian.report/wp-content/uploads/2019/04/export-GHJBo-1024x683.png 1024w, https://brazilian.report/wp-content/uploads/2019/04/export-GHJBo-300x200.png 300w, https://brazilian.report/wp-content/uploads/2019/04/export-GHJBo-768x512.png 768w, https://brazilian.report/wp-content/uploads/2019/04/export-GHJBo-610x407.png 610w, https://brazilian.report/wp-content/uploads/2019/04/export-GHJBo.png 1200w" sizes="(max-width: 1024px) 100vw, 1024px" /><span style="font-weight: 400;">

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MoneyApr 22, 2019

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BY Gustavo Ribeiro

Gustavo is the founder of The Brazilian Report, and is an award-winning journalist with experience covering Brazilian politics and international affairs. His work has been featured across Brazilian and French media outlets.

BY Marcelo Soares

Marcelo Soares is a Brazilian journalist specializing in data journalism and reader engagement.