Source: Valor Econômico, 05/11/2007

After the poor performance in the 90s, formal employment started to react in 1999, in a movement that resulted in an expressive growth of Social Security contributors. “Between 2004 and 2006, employment with a formal contract grew at an average annual rate of 5%, while the number of Social Security contributors increased by 5,2% per year”, highlights a study by professors Paulo Baltar and Eugenia Troncoso Leone, from Center for Union Studies and Labor Economics (Cesit) of the Institute of Economics of the State University of Campinas (Unicamp).

For Baltar, the steady growth of social security contributions in recent years allows one to calmly discuss possible reform proposals in the retirement system, calmly addressing possible demographic and actuarial problems.

The study by Baltar and Eugenia shows the importance of formal employment for Social Security revenues in Brazil. It covers only “39% of people employed in all economic activities in the country”, but accounts for no less than 79% of Social Security contributors. Non-formal employees, domestic workers, self-employed and unpaid, in addition to employers, contribute little to the system.

According to them, the situation began to change in 1999, even in a scenario of weak growth in economic activity. "GDP grew at an annual rate of 3%, causing an increase in the number of employed persons in all economic activities by 3,7% per year, with formal employment growing at 5,4%", write Baltar and Eugenia.

For them, there are two basic types of informality. The most traditional stems from the weak dynamism of economic activity. The second is the result of “the expansion of illegality in 'productive' businesses and the resulting employment contracts” that were accentuated in the 90s. The two economists believe that the slight reversal of the informality process since 1999 “has to do basically with the reduction associated with illegality ”.

Critics of the high interest macroeconomic policy and the fiscal effort based on increasing the tax burden and reducing public investments, Baltar and Eugenia believe that “this strategy prevented the country from taking better advantage of the opportunity to intensify the growth of the economy with the situation favorable international situation that has prevailed since 1993 ”. In summary, “the containment of GDP growth prevented greater productive absorption of the increase in the active population, but the need to repeat the primary surplus resulted in improved enforcement of the law, with favorable implications for the legality of employment contracts, benefiting the growth of formal employment ”. Baltar also says that, with the expansion of credit, there is also a greater movement of companies towards formalization - those who are informal have difficulties in obtaining credit -, which also contributes to increase the formalization of employees. The greater number of companies that decide to access the capital market also helps, he evaluates.

In this scenario, the number of contributors to Social Security tends to grow, even more at a time of greater expansion of economic activity. Discussions about the need to change the retirement system can be held in a calmer climate. "I am not saying that other aspects of Social Security should not be discussed, such as the demographic and actuarial issue, but it is not necessary to do it in a hurry", he says. From January to September, revenues from the National Social Security Institute (INSS) grew by 15,6%.