Volume 43, Number 171,
October-December 2012
Structural Limits on Economic Development:
Brazil (1950-2005)
Bibiana Medialdea
EXTREMELY POLARIZED INCOME DISTRIBUTION

As proposed in the first section, the dimensions and morphology of internal demand maintain a close relationship with the characteristics and evolution of the national distribution of income.

By first addressing the relationship between income distribution in Brazil and the volume and composition of demand for consumption, we must begin by pointing out the low participation of salary incomes in the country’s total income. On average, salaries maintain a very low level with respect to the gdp, below 43%, while in developed countries, salaries have much higher participation, somewhere around 55% to 60%.23 As we can see in Figure 3, in the mid-1950s, salaries reached a maximum peak of participation at 48%, and after staying between this level and 45% in subsequent years, began to fall precipitously, so that by the 1960s, salary participation was around an average of only 40.1%. Although this number began to recover during the 1980s and the first half of the 1990s (when global income was practically stagnant), a much greater drop later occurs: in a little over a decade, working income loses 12.3 percentage points over total income, so that by 2005, working income has the lowest participation in the entire historical series, at around 36%.

The notable decrease that the trend line shows in Figure 3 makes clear two indubitable and fundamental facts: the loss of participation of salary contribution to global income and its extremely low relative level since the mid 1990s. Moreover, this evolution allows us to distinguish two different periods. During the first three decades, in spite of the intense deceleration produced at the end of the 1960s and the beginning of the 1970s, the salary mass increased at an average annual rate of 7.1%, similar to what happened with the gdp and private consumption. In this way, although this growth is partially determined by a rapid increase in the number of salaried workers (the active urban population grew at 5% annually), it is useful to estimate that in these decades there was also some improvement in the unit salary.24

Figure 3. Salary Mass. 1950-2005 (% of gdp)


Source: Prepared by the author following the methodology proposed by Marquetti (2003) and Bruno (2007) based on working data from Marquetti and ibge (Sistema de Contas Nacionais). The trend line is linear.

The situation begins to reverse itself in the 1980s. On the one hand, the growth in salary mass sharply decelerates: between 1981 and 2005, it barely grows at 1.8% annually.25 In this way, although job creation also has a lower growth rate, keeping in mind that data from the official census of the active urban population goes up at 3.4% annually, it useful to deduce that the salaried employee would keep increasing at a significant rate and, as such, the unit salary practically does not grow, or even goes down. Evolution of the minimum legal wage, which is the only wage that allows us to establish a homogenous salary series since 1950, confirms this estimate.26 After increasing strongly in real terms during the 1950s and 1960s, it backtracks at the end of the latter decade and the beginning of the following. Later recuperation was cut off at the beginning of the 1980s and a sharp drop began again, so that by the start of the 1990s, the Brazilian minimum wage reached its minimum value, at approximately 38% of what it was during the Vargas years. Although it would increase a bit later on, by 2005, its value was still equivalent to what it was at the beginning of the 1980s.27 Moreover, we must consider that starting in the 1980s, the Brazilian labor market was rapidly deteriorating. The reduction of the most structured labor areas (industry, including state production), the appearance of urban unemployment as a massive phenomenon and the increase in the informal labor market, among other factors, meant that the distribution of salary incomes increased, which indicates that important sets of workers surely did not experience any real salary growth (Medialdea, 2009).

23 The data on salary mass over gdp that we provide in this section was obtained by following the methodology proposed by Marquetti (2003) and Bruno (2997) based on data from the same work by Marquetti and from the ibge (Sistema de Contas Nacionais) which were accessed through the ipea portal (http://www.ipeadata.gov.br/ ).

24 Up until the coup in 1964, the so-called populist pact represented by Vargas brought about an ostensible economic improvement for the new group of industrial urban workers. In the 1950s, the real minimum wage was tripled. See Lessa (1998) and Marques and Rego (2003).

25 The peaks in the Figure in 1989 and 1995 do not correspond with nominal growth of the salary mass, but rather with large drops in inflation indexes as a result of a variety of stabilization plans that had rapid short-term effects (Plan Verao and Plan Real).

26 The evolution of the minimum wage is indicative because the clauses of salary adjustment, some informal salaries and some social benefits are set using it as a reference.

27 The real value of the minimum wage was taken ipea (http://www.ipeadata.gov.br/), which deflates the nominal values with the icv (Cost of Living Index) until 1979, and with the inpc (National Consumer Price Index) starting in 1979.

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