Crises, labour market and informality in Brazil: the Covid-19 shock in the light of past dynamics

Abstract

In this article, we show the magnitude of the impact of the Covid-19 crisis on the Brazilian labour market, especially on informal workers who were the main victims. This result calls into question the validity of the standard model, referred to in our work as a ‘canonical crisis’, which states that the informal economy plays a counter-cyclical role as a shock absorber. A thorough analysis reveals that this mechanism was no longer at work either for the pandemic crisis or for the two previous macroeconomic crises: informal employment recedes in times of crisis. In addition, we shed light on a striking phenomenon: the pandemic triggered an upsurge in the number of discouraged workers. How these individuals excluded from the labour market coped day to day remains under-investigated. Among the shock mitigation strategies, only the emergency transfer programme played a significant compensatory role. The crisis may mark a turning point by showing that informal workers – a hitherto politically ‘invisible’ group – became a focal point of public policy and were able to influence decisions. The government can no longer hide behind the laissez-faire strategy of relying on the informal sector as a safety valve to limit the socioeconomic impacts of crises.