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Labor Productivity in Brazil
Fernando de Holanda Barbosa Filho
• Labor productivity growth is steady but modest over time.
Labor Productivity Evolution
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Introduction
However, labor productivity is low in Brazil.
Low labor productivity is not a composition problem,
but a level problem
Composition effect is small.
Why low labor productivity?
Low productivity sectors.
Low productivity services. Importance of traditional services
and low productivity modern services.
Long tail of low productivity firms in all sectors
Services Productivity
Source: FGV/IBRE
10,000
30,000
50,000
70,000
90,000
110,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Modernos Tradicionais Total
Modern Traditional Total
Labor Productivity Comparison (US$PPP)
Agropecuary Industry Services Total
Brazil 4.779 19.389 15.814 14.689
USA 66.271 109.937 85.647 89.318
Ireland 27.976 114.873 80.397 84.949
Australia 65.469 88.358 61.589 67.555
France 50.027 64.056 69.225 66.488
Japan 18.102 70.607 65.400 64.967
Great-Britain 25.184 70.852 54.643 56.729
South Korea 24.290 74.759 44.429 52.503
Mexico 6.109 31.423 27.836 25.260
China 3.599 25.661 18.549 14.792
India 2.224 11.984 17.307 8.423
Average SEA 25.250 52.802 48.218 46.994
USA/Brasil 13,9 5,7 5,4 6,1
Average
SEA/Brasil 5,3 2,7 3,0 3,2
Fonte: Veloso, Matos, Ferreira e Coelho (2016)
Labor Productivity
Long tail of low productivity firms in all sectors.
Firms in Brazil do not grow overtime.
High dispersion over firms productivity. No learning or
selection process?
Firms Labor Productivity Distribution Brazil and Selected Countries (WBES)
Firms Labor Productivity Distribution Brazil and Selected Countries (WBES)
País Mean MedianVariation
coefficient
BRA 9,8 10,2 2,3
CHL 10,8 10,9 1,2
CHN 10,9 10,8 1,3
COL 10,7 10,8 1,2
MEX 9,9 9,9 1,4
PER 10,4 10,4 1,2
RUS 10,7 10,7 1,4
Total 10,6 10,7 1,6
Table 2: Labor Productivity per country (LN; US$ PPP de 2009)
Firms Labor Productivity Distribution – Textile
Firms Labor productivity Distribution Retail and Wholesale Trade
Firms Labor Productivity Distribution – Hotels and Restaurant
Firms Labor Productivity Distribution – Counter factual
Firmas Dynamics
Akcigit, Alp e Peters (2016):
“Firm dynamics in poor countries show striking
differences to those of rich countries. While few
firms indeed experience growth as they age,
most firms are simply stagnant in that they
neither exit nor expand.”
“We interpret this fact as a lack of selection,
whereby producers with little growth potential
survive because innovative entrepreneurs do not
expand enough to force them out of the market.”
Firmas Dynamics
Firmas Dynamics
Firms do not grow overtime. Neither in revenues nor
in employees.
The same happens with productivity over time.
It seems we do not have a selection process.
Firms Dynamics over time
Number of Employees x Age
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
0-5 06-10 11-15 16-20 21-25 26>
BRA CHL CHN COL MEX PER RUS
Fonte: Elaboração própria com dados da WBES.
Firms Dynamics over time
LN (Revenue) X Age
10
11
12
13
14
15
16
0-5 06-10 11-15 16-20 21-25 26>
BRA CHL CHN COL MEX PER RUS
Fonte: Elaboração própria com dados da WBES.
Firms Dynamics over time
LN (productivity) X Age
8.5
9
9.5
10
10.5
11
11.5
12
0-5 06-10 11-15 16-20 21-25 26>
BRA CHL CHN COL MEX PER RUS
Fonte: Elaboração própria com dados da WBES.
Firmas Dynamics
Firmas Dynamics
“An important next step in this research agenda
is to incorporate these findings into the study of
industrial policies in developing countries.”
“For instance, many regulations that support and
facilitate the survival of small firms might have
undesired consequences once the heterogeneity
in firms types are taken into account.”
“The quantitative implications of industrial policies
for firm selection and firm dynamics are first-
order issues that await future research.”
Discussion
Brazil has several programs that protect small firms.
The programs have major tax incentives for small
firms.
Simplified tax forms (Simples) benefit firms that
report revenues above US$1 million (R$3,6 million).
These firms are not small.
There is also the “Lucro Presumido” that has a lower
tax rate for firms with revenue below US$26 million
(R$78 million).
The tax incentives lead firms to reduce their size
artificially to benefit. This may hurt productivity.
Counter Factual Exercises
• Labor productivity distribution in Brazil has a heavy, low
productivity tail.
• The counter factual exercises aim to reduce its lower tail
and project a cuonter factual productivity.
• First: Level X Composition exercise
• Second: Ad hoc lower productivity tail reduction
• Third: Clusters Analysis
Level X Composition Exercise
Level and composition effect.
Level effect explains most of the difference
Original
Counterfactual
(Composition) Counterfactual (level)
CHL 93% 92% -3%
CHN 103% 90% 13%
COL 89% 71% -10%
MEX 3% 11% 9%
PER 59% 67% 10%
RUS 84% 81% -9%
Productivity Differential
Labor Productivity Comparison Composition Effect
Fonte: Veloso, Matos, Ferreira e Coelho (2016)
Brazil Counterfactual
(USA) Counterfactual
(Mexico) Contrafactual (South Korea)
Productivity 14.633 24.623 15.170 23.684
Counterfactual Ratio
1,68 1,04 1,62
Observed ratio 6,10 1,73 3,59
Labor Productivity Comparison Level Effect
Fonte: Veloso, Matos, Ferreira e Coelho (2016)
Brazil Counterfactual
(USA) Counterfactual
(Mexico) Counterfactual (South Korea)
Productivity 14.633 77.542 26.716 42.835
Counterfactual Ratio
5,30 1,83 2,93
Observed ratio 6,10 1,73 3,59
Lower tail Reduction
Min Mena Median mean Median
BRA 1,9 9,8 10,2
CHL 5 10,1 10,2 25 0
CHN 6,4 10,4 10,4 56,6 22,4
COL 7,2 10,5 10,5 71,6 28,8
MEX 4,3 9,9 10,2 4,8 0
PER 6,7 10,4 10,4 59,1 22,4
RUS 3 9,8 10,2 0 0
Counterfactual Brazilian Productivity
Gains (%)
Source: Author with WBES data.
Clusters Analysis
Variável de separação Group 1 Group 2 Group 3 Mean Counter
Factual
Difference
(%)
LN(revenue) 7,5 10,5 12,3 9,8 10,9 105
LN(Productivity) 6,1 9,8 11,9 9,8 10,7 88
LN (productivity) X LN
(Reveneu)6,2 10,1 12,2 9,8 10,7 90
Productivity by Group
Source: Author with WBES data.
Conclusion
• Labor productivity grows overtime at a lower rate.
• Labor productivity level is low in Brazil.
• Labor productivity is low due to sector low productivity. It
is a level effect not a composition effect.
• Brazil has a long tail of low productivity firms.
• Lack of selection.
• Firms do not grow overtime.