Brazil loses a decade of inequality reduction to the pandemic

. Jul 27, 2020
Public policy’s failure to prevent rising inequality Image: MicroOne/Shutterstock

A study by NGO Oxfam Brasil claims that the pandemic has not disturbed the wealth of Brazil’s billionaires. In fact, the 42 individuals who make up the top 0.00002 percent of the country actually improved their net worth by a combined USD 34 billion. Meanwhile, the rest of Brazil is heading into a lost decade in the economy, meaning that an entire generation of Brazilians will never reach their potential peak, as we at The Brazilian Report have shown.

But with new data being collected, analyzed, and used as the base for scientific studies, Brazilians are getting an even more comprehensive view of this crisis. A recent paper by researchers from the University of São Paulo and the Institute for Applied Economic Research (Ipea) has disclosed the story of Brazilian inequality and poverty between 2012 and 2019. And the outcomes found by Rogério Barbosa, Pedro Ferreira de Souza, and Serguei Soares corroborate the lost decade hypothesis.

</p> <p>Those conclusions are not apparent in families’ average income because, over the decade, the economic gains and losses were spread unevenly. All the data used by the researchers come from the National Household Sample Survey (Pnad), the broadest and most reputable of its kind in the country.</p> <p>The data shows the snapshot of the economic situation before the coronavirus crisis hit the country. Indeed, understanding the 2010s decade in Brazil requires the comprehension of two distinct periods before and after 2015. In the first half, the economy had grown, unemployment rates were low, and inequality and poverty had fallen. But from 2015 onward, everything changed.</p> <p>The <a href=",was%20mired%20in%20political%20turmoil.&amp;text=In%201964%2C%20the%20year%20of,hit%2092%20percent%20a%20year.">recession in Brazil</a> lasted from Q2 2015 all the way up until the end of 2016. According to the study, while the richest families saw some improvements of 2016, the poorest segments of the population continued to suffer the negative impacts of the economic downturn until 2019.</p> <p>“Decisions taken by the government caused an uneven recovery. The policies to protect the poorest have not been a priority,” said Rogério Barbosa, one of the researchers, to <strong>The Brazilian Report</strong>.</p> <h2>An uptick in inequality levels</h2> <p>The Gini coefficient is a mathematical measure of dispersion in which 0 represents complete equality between the values, and 1 means the opposite. The higher the index, the more unequal the country&#8217;s income. As a comparison, <a href=";most_recent_value_desc=true&amp;start=2012">according to the World Bank</a>, the highest index belonged to South Africa and was around 0.63 in 2014. The lowest, in Slovenia, was 0.24 in 2017. Brazil is seventh in the ranking, which has yet to disclose numbers for 2018 and 2019.</p> <div class="flourish-embed flourish-chart" data-src="visualisation/3303859" data-url=""><script src=""></script></div> <p>The pandemic has been disproportionately cruel to poor Brazilians in many ways — and <a href="">inflation</a> is one of them. According to the latest data from Ipea, prices went up 0.77 percent this year for very low-income people — against a -0.24-percent rate for high-income earners. This is because food prices rose amid the pandemic, and they account for a bigger chunk of poor people&#8217;s basket of goods and services.</p> <div class="flourish-embed flourish-chart" data-src="visualisation/3303972" data-url=""><script src=""></script></div> <h2>Reversing the poverty rate curve</h2> <p>Between 2001 and 2011, results had shown an improvement for average income, inequality, poverty and extreme poverty. The latter two fell, respectively, 4 and 12 percentage points in ten years. But like inequality, poverty indicators have stagnated from 2012 on.&nbsp;</p> <p>The measure of poverty varies according to the parameters used. The World Bank defines poverty as earning up to USD 1.90 per day (BRL 10.13). Research from Ipea suggests this threshold should be lower, at BRL 178. The Brazilian government defines extreme poverty as having an income of up to BRL 89 per person per month. In both cases, the portion of the population under these parameters is higher now than in 2012.</p> <p>In 2014, one-third of the Brazilian population lived with less than half a minimum wage per month. In 2019, this rose to 41.5 percent. This means that around 16 million of Brazil&#8217;s 200 million population fell into this <a href="">income bracket</a> in just five years.</p> <div class="flourish-embed flourish-chart" data-src="visualisation/3304027" data-url=""><script src=""></script></div> <p>From this data, the researchers concluded the economic recession is not the only factor to blame regarding the worsening in the indicators. Public policies failed to protect the most vulnerable and worked to concentrate income since the recession reached the Brazilian economy. “After the crisis, the wealthiest earned the growth gains. That is why the increase in inequality is not merely due to the economy. Behind this, there is a prioritization of the highest extracts”, says Mr. Barbosa.</p> <h2>The public police’s failure to prevent a bump in inequality</h2> <p>With the recession as the starting point for the problem, Mr. Barbosa lists the government’s mistakes. He argues that public policies failed to hamper the rise of inequality, and some measures even pushed it.</p> <p>The main point is the weakening of the cashing transfer program Bolsa Família, one of Brazil’s most successful anti-poverty initiatives. Since 2014, the researcher says, the amount of money had fallen when it was supposed to grow &#8211; thanks to a crisis scenario in which it would be still more necessary. As a result, the exclusion of eligible people in operations to supposedly counter frauds and a bigger waiting list.&nbsp;</p> <p>Regarding the labor market, Mr. Barbosa mentioned as a mistake the hardening of rules for unemployment insurance. As the economic recovery happened with informal employment, with no rights, the formal workers’ gap also pushed the inequality. There was also a decision to ease the retirement length of service, not the case of the most vulnerable.</p> <p>“The state did not protect the poorest, people who rely on [cash-transfer program] Bolsa Família. It favored rules that allowed rich people to retire early. And unemployment insurance, which has not helped mainly young people as it should. These are political decisions”, says Mr. Barbosa.</p> <p>The effects over the income of the population can be examined in the following graph. Between 2015 and 2018, the 10 percent poorest lost at least 10 percent of their revenue. On the other hand, the wealthiest half of the population’s income increased. These numbers also show a reversion of the situation after 2015. Before the economic crisis, the poorest had been improving proportionally more than the richest. “I am emphasizing the role of the state. I am saying that it was silent or focused on the privileged during the recovery,” says the researcher.</p> <div class="flourish-embed flourish-chart" data-src="visualisation/3304442" data-url=""><script src=""></script></div> <h2>How rich are Brazil&#8217;s top earners?</h2> <p>The top of the wealth pyramid in Brazil often causes a limitation in research. In basic terms, wealthy people are rare and tend to be excluded from samples. They are also more reluctant to answer questions and accurately report their income, which results in an underestimation of wealth.&nbsp;</p> <p>In the past, this stopped researchers from noticing that Brazilian inequality had not fallen as much as expected. The richest had earned more than others, and it hampered the fall of inequality for the rest.</p> <p>But now, this limitation could hide an even deeper problem. According to Rogério Barbosa, accurate estimation of Brazil&#8217;s wealthiest individuals would probably show they are even more prosperous, and that the country&#8217;s inequality is higher. “We know that the PNAD measures very well up to the 95th and 96th percentile. But we have an uneven recovery that favors the richest. If we were able to measure the top properly, it would probably add a layer of gravity because PNAD tends to underestimate the income of the richest.”

José Roberto Castro

José Roberto covers politics and economics and is finishing a Master's Degree in Media and Globalization. Previously, he worked at Nexo Jornal and O Estado de S. Paulo.

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