The debate about the Reduction of working hours in Brazil It gained a new element with the analysis of economist Gabriel Chodorow-Reich, a professor at Harvard University and specialist in macroeconomics, finance, and the labor market. In an interview with Folha de S. PaulThe researcher assessed that the discussion makes sense given the economic evolution recorded by the country in recent decades, but stressed that changes of this magnitude require a broad analysis of the impacts on businesses, productivity, employment, and informality.
Chodorow-Reich was in Brazil for the first time this month to participate in the annual conference hosted by the Central Bank and closely followed the discussions on the proposal to reduce the weekly working hours, a topic that has gained momentum in the political arena and has become part of President Luiz Inácio Lula da Silva's government's strategy to increase its popularity.
According to the economist, the desire to reduce working hours follows a trend observed in economies that reach higher levels of income and development.
"As countries get richer, working hours tend to decrease," says the researcher.
Despite this, he argues that any reform needs to consider the specific context of labor laws and the functioning of the Brazilian labor market.
Reduction in working hours follows international trend.
According to Chodorow-Reich, the gradual decrease in working hours is a phenomenon observed historically in several countries.
“As countries get richer, working hours tend to decrease. It's not by much, but it's a pattern. It makes sense that Brazil, which has done reasonably well macroeconomically in recent decades, would be interested in reducing working hours. But it's difficult to think about a reform like this without considering the broader system, labor laws, and the ease of hiring and firing workers. This varies greatly between countries. In some places, there's a maximum number of hours worked, or they have to pay overtime, 50% more per hour above a certain limit.”
The proposal under discussion foresees replacing the 6x1 work schedule with a 5x2 schedule, reducing the weekly workload from 44 to 40 hours without a decrease in salary.
According to the economist, the change would, in practice, represent a significant increase in hourly wages.
"This is effectively a 10% increase in workers' wages. I can understand why this is a popular policy in an election year and why companies would likely resist it."
Productivity can go up or down.
When questioned about the potential effects of the measure on productivity, Chodorow-Reich stated that economic theory offers arguments for different scenarios.
According to him, shorter workdays can increase worker efficiency by reducing fatigue and improving performance throughout the workday. On the other hand, certain activities require continuity and may face difficulties with a reduction in working hours.
"Economics is capable of presenting theories for both directions [increase or decrease in productivity]. Productivity could rise because those last four hours someone is working per week, the person isn't working as intensely as in the first hours because they are tired, so you're not losing as much. It could fall because in some industries or companies, the task a worker is doing might be really difficult to transfer to another. So, if you don't let that person finish their task, that would be a problem. It's difficult to say what the net effect would be, but I would say it wouldn't be that great in either direction."
Risk of informality is a concern.
One of the points highlighted by the professor is the impact that a potential reduction in working hours could have on company costs.
According to him, if there are no equivalent productivity gains, companies will have to absorb the increased cost of labor in some way.
"Labor costs increase for companies if there is a 10% increase in the hourly wage without a corresponding increase in productivity. The company can absorb the increase at the expense of its profits, which will fall. The company can raise its prices, which would increase inflation, at least temporarily, and in the end would leave workers with no real wage gain because it would be eroded by inflation."
He also points to the possibility of staff reductions and an increase in informal employment.
“Workers who are laid off may find other jobs or may migrate to the informal sector, or [companies] may stop registering some workers or make them work more than 40 hours. This is the set of things that can happen, which includes a movement towards informality.”
According to the economist, the most popular alternative would be a reduction in corporate profits, while the other effects could generate greater social resistance.
Flexibility would be an alternative.
When discussing possible mechanisms to mitigate the impacts of change, Chodorow-Reich expressed a preference for more flexible solutions.
He believes that subsidizing companies to compensate for reduced working hours would not be the most efficient approach.
"This becomes an indirect way for the government to make transfers to workers, causing companies to increase wages and then the government paying the companies. It's probably not the best way."
Alternatively, it suggests models that allow for specific agreements between companies and workers.
“There are also more flexible alternatives. Adopting a 40-hour week or a 5x2 schedule, but allowing companies and workers to negotiate an agreement for an extra day off if they want to maintain their current salary and working hours. A little flexibility usually helps.”
The job market defies predictions.
Another topic addressed by the researcher was the resilience shown by the Brazilian labor market, which continues to register historically low levels of unemployment even in the face of high interest rates.
According to him, although Brazilian rates are high compared internationally, current indicators do not suggest an excessively restrictive monetary policy.
“Interest rates in Brazil are high relative to peers, and why they are so high is a billion-dollar question. But I wouldn't say they seem excessively restrictive, in the sense that unemployment is low and inflation is at the top of the Central Bank's target band. That's usually a sign that interest rates aren't too restrictive. If they were restrictive, we would see unemployment rising and inflation falling.”
For him, the difficulty companies face in hiring workers is an important indicator of the strength of the labor market.
"It was very difficult to find a worker, and the difficulty in finding someone to hire is what I consider the best measure of the tightness of the labor market."
Caution with interest rates and concern about energy.
Chodorow-Reich also expressed concern about the impacts of rising energy prices resulting from tensions in the Middle East.
In their assessment, the current scenario calls for caution from central banks and reduces the scope for accelerated interest rate cuts.
“Perhaps that’s the case. Another thing to worry about now is energy price shocks. With the recent history in Brazil and the US of higher-than-desired inflation and inflation expectations above target, it becomes a dangerous time to cut interest rates and risk another wave of inflation that could unanchor [move away from the target] these expectations. Given all this, I don’t think there should be a rush to cut interest rates, at least without further evidence of some weakening in the labor market.”
Conflict in the Middle East generates uncertainty.
When analyzing the global effects of geopolitical tensions, the economist stated that the greatest risks are still difficult to measure.
According to him, countries dependent on oil imports may face more severe challenges if the crisis continues and compromises the flow of energy through the Strait of Hormuz.
He further warned of the possibility of unexpected vulnerabilities emerging that could trigger chain reactions on emerging economies.
"There are real risks, but the truly big risks are those that we don't yet know where they are or how to quantify them."
According to Chodorow-Reich, the combination of high energy prices, persistent inflation, and geopolitical uncertainties demands heightened attention from economic policymakers worldwide, including in Brazil.
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