In this work we discuss the reflections of the expected contraction of GDP em 2015 on the unemployment rate and labor income. In the exercise, we assume that GDP will contract by at least 0.5% and at most 1.5%.
The projections are based on data from the Monthly Employment Survey (PME) and a highly stable relation between growth of GDP and of the occupied population, leading to an estimate of the growth (shrinkage) of this population. To reach the jobless rate we have to introduce an estimate of the evolution of the participation rate, which has been falling since the start of 2014. Although there are no precise models explaining the cause of this change, there are indications that it will – more quickly or more slowly – return to the average of the series. If this doesn’t happen, a GDP dip of 1.5% will lead to an umemployment rate of about 6.7%, while if the participation rate reverts to the mean, the jobless rate will be a good deal higher.
We complete the exercise by estimating the behavior of labor income, based on the information from the unemployment rate, the behavior of the minimum monthly wage and inflationary surprises. In both cases considered, there will be a fall in real labor income.
A consensus has already formed that 2015 will be a year of recession. The median GDP projection for year, according to the Central Bank’s Focus survey, is -0.66%, and the estimate we presented in our last Quarterly Outlook is that GDP will shrink 1%, with a risk of an even worse outcome. Here we assess the behavior of unemployment and wages against the backdrop of a GDP retraction of between 0.5% and 1.5%.
As in all exercises involving projections, this one depends not only on the quality of the model, but also on the quality of the available data. The models described below lead to stable estimates of the parameters, which narrows the margin for error. However, it isn’t possible to measure with any precision the error introduced by the quality of the data fed into the model. The only base with a sufficiently long series of the variables necessary for the exercise is the Monthly Employment Survey (PME), the reason we use it here. In the appendix we discuss the properties of this series in comparison with the National Household Survey (PNAD), in both its yearly and continuous forms.
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