Re-adjustment without inflation is common in companies

with the weak economyIn the private sector, workers face difficulties in adjusting wages above inflation rates. There was a sharp deterioration in three years: in 2018, only 9% of categories could not outpace inflation. In 2021, the indicator grew more than fivefold, reaching 47%, according to data from Dieese (Inter-Confederation Department of Statistics and Social and Economic Studies).

The deterioration coincides with the outbreak of the COVID-19 pandemic. Experts heard before UOL Emphasizing that the accelerating inflation and the slow recovery of the economy are among the factors that harmed the workers in the negotiations.

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Data show that in 2021, only 15% of negotiating adjustments resulted in real gains (above inflation). And 47% of the agreements were below the national consumer price index (INPC), which serves as a reference for salary adjustments, while 38% had corrections according to inflation (neither gained nor lost).

The percentages contrast with the pre-Covid-19 scenario. In 2018, under Michel Temer, 75% of adjustments were above inflation, while 9% did not compensate for losses. Another 16% had adjustments equal to INPC.

This year is also bad in February (latest data from Dies) , 61% of the adjustments were below inflation, considering 119 collective agreements with a base date that month. Another 24% was above accumulated INPC and only 15% made up for inflation.

Dieese numbers are updated every month based on each denomination’s base trading date. This means that if a class with a base date in February closes a trade only in the following months, the result is calculated in February later, which could change the current percentage.

In practice, what has been seen in recent years has been a reversal of the trend, with workers losing the purchasing power of their wages. Adjustments under inflation, which were previously exceptions, are becoming common in businesses.

The absence of economic growth and the development project led to growing unemployment and the fragility of the labor market. Recently, from 2021 onwards, there has been an increase in inflation, which makes salary replacement more difficult.
Antonio Correa de Lacerda, Economist

The pandemic has made salary replacement a challenge

The effects of the COVID-19 pandemic on businesses and the labor market have made wage substitution a challenge for workers.

According to the technical supervisor of Dieese’s office in Sao Paulo, Victor Pagani, during the pandemic, the priority in collective bargaining was no longer adjusting salaries and becoming the protection of employment and workers’ health.

With companies also facing difficulties, due to social isolation, readjustments above inflation are becoming scarce.

After the most severe phase of the pandemic, with vaccination progressing, economic activity has resumed in recent months. Thus, the main focus in the negotiations returned to the issue of salaries.

However, it is possible to verify that the general trend has been to readjust below the interest rate index or only replace previous inflation, without real gains. Before the pandemic, most adjustments expected gains.

Companies are still struggling

One factor for lower-than-inflation adjustments is that companies remain uncertain about the future, says economist Renan Gomez de Perry, professor at FGV/Eaesp (São Paulo School of Business, Fundação Getulio Vargas).

Companies are more pessimistic about economic growth this year and next. If the perception is bad, then it is natural that they try to keep the wages of the workers. In addition to being unsure of what lies ahead, companies have big commitments. Many have had to go into debt due to the pandemic to continue operations.
Renan Gomez de Berry, Economist at FGV / Eaesp

Another factor affecting salary negotiations is the latest advance in inflation. INPC compiled at 12 months, according to the IBGE (Brazilian Institute of Geography and Statistics), has exceeded 10%:

INPC change in 12 months

• August 2021: +10.42%
• September 2021: +10.78%
• October 2021: +11.08%
• November 2021: +10.96%
• December 2021: +10.16%
• January 2022: +10.60%
• February 2022: +10.80%

Thus, the salary negotiations that led to inflationary substitution in recent months have resulted in at least a 10% increase in corporate payroll – a related cost. In discussions, companies take this effect into account.

“The higher the rate of inflation, the more distortion it causes in the economy. And while many companies readjust their prices to an average of 10% inflation, many are unable to adjust or take too long to do so,” Perry says. This can be difficult to raise salaries at the other end.

The economist adds, “The fact that inflation is high in itself creates bargaining space for companies. They negotiate higher increases with workers, even if they do not completely replace inflation.”

Greater pressure from workers

With the resumption of economic activity, Victor Pagani, of Deiss, expects that there will be increased pressure on the private sector to increase salaries. According to him, this will increase due to inflation, which is in the double digits.

Among the workers, Pagani says, there is a kind of “pent-up demand” for higher wages, two years into the crisis.

This phenomenon is similar to that seen between Federal civil servantswhich has been pressing since December on the government to make amendments.

In some categories, we see more incentive to reset inflation. Professionals in the chemical field in the state of São Paulo closed an amendment by the INPC in the collective agreement with the Federation of the Pharmaceutical Industry, for example. Despite the complex scenario, the more regulated categories, with more trading traditions, inflation may reset.
Victor Pagani, Technical Supervisor Dieese-SP

Pagani says the adjustments will depend on workers’ ability to mobilize. “The perspective is the intensification of the distributive struggle,” he says. “Perhaps even with pitfalls, strikes and strikes.”

According to Deiss’ technical supervisor, high inflation ends up favoring the packing. “It is easier for a worker to mobilize for a 12% readjustment than for a 4% readjustment,” he states.

The high unemployment rate favors companies in business

Economist Antonio Correia de Lacerda, professor at PUC-SP (Pontifical Catholic University of São Paulo) and president of the Federal Economic Council (Cofecon), says high unemployment favors companies in negotiations.

IBGE data shows that in the last quarter of 2021, Brazil had 12 million unemployed people and another 4.8 million disenchanted (people who wanted to work, but didn’t look for a job because they thought they wouldn’t).

“The total of the unemployed, discouraged and unemployed in Brazil reaches 29 million people,” says Lacerda. “In other words, supply and demand, the basis for setting the price of labor, are frankly favorable to the employer. This greatly reduces the bargaining power of workers and unions.”

For Pieri, of the FGV, the situation will not change in the short term. “It will take a few years to reshape wages,” he says. “This has to do with the country’s low growth prospects.” “Only when companies have to compete for workers will we have big adjustments.”