Jose Pastore: The unemployment rate in 2006 came to 10% and affected around nine million people. This is an enormous figure. Informality comes to almost 60% - an obscene number. This hurts both the people who have no protection and the Social Security system which loses revenues. The deficit in the state pension system, the INSS, came to R$ 42 billion in 2006. This forces the government to borrow money on the financial market, which pushes up interest rates, reduces investment, holds back job creation and maintains unemployment, or use the resources from the fiscal surplus. This prevents the government from investing in infrastructure and holds back growth and job creation. The labor courts in Brazil have around two million pending cases. This is a fantastic number. By comparison, France has around 70,000. Civil cases involving labor disputes in the United States amount to around 75,000 and to only about 2,500 in Japan a year. We are not talking here about a lack of judges but the failure of the legislation. Japan has laws of consensus while Brazil has laws of dissent.

Pastore: Ideally we need the federal Constitution to be changed in terms of the labor laws. However, this is politically impossible. I support the idea of creating a simplified working contract for companies and employees which are taxed within the simplified system and a special social security system for those who work for themselves. The number of self-employed people on the informal market is enormous. There were 46.5 million people working informally and 35 million working formally in the private sector in 2005.  That means 57% of all private sector workers are informal. Of these, 45% work for themselves – that is around 22 million people. Measures like this could help reduce informality gradually.

Pastore: To date I have seen no political will to attack these problems – neither in this nor any previous government.

Pastore: Companies and organizations would have to launch a serious campaign in this area. This would require a project with good ideas and, above all, it would need to be properly explained to the population. Many workers are currently afraid of losing their rights. I think the reform program needs to be presented in an educational way and start by reassuring people that they have nothing to fear. It needs to be explained that the reform is not aimed at removing their rights but extending some of the rights they enjoy to those in the informal sector who have none. Obviously these would be partial rights but partial rights are better than rights at all. Companies can help a lot in the communication campaign by making this clear to their employees. However, the government has to show leadership and will. If the government is not on board, the campaign will get nowhere.

Pastore: I regard the informal market as one in which people work and where they have no kind of social security rights and, therefore, no social protection.

Pastore: Informality is not a relief valve of any kind but a grave illness. It leaves workers unprotected and hits public finances, holding back growth and job creation.

Pastore: I think any kind of legal job for which there is a demand is useful for individuals and society.

Pastore: The main problem is the legal insecurity surrounding labor matters. For example, a judge can annul any agreement made between parties today, tomorrow or in 10 years time – creating large liabilities for companies. At the same time, Brazil has many laws which operate retrospectively. A law was passed recently under which companies would have pay a bill from the period of the “Verão” and “Collor” plans which date back from 1989 to 1991 to the FGTS system which handles payments to workers who lose their jobs. The companies believed they had paid properly at the time but they got nowhere. There has been a big increase in the cost of the FGTS since 2002. Besides this, just hiring a worker brings costs of 102.76% above the basic salary – which leaves little room for negotiation. This compares with 70% in Argentina, 58% in the UK, 11% in Japan and 9% in the US.

© John Fitzpatrick 2007