Brazil's Minimum Wage Case Study

Case Study #1: A history of Brazil’s Minimum Wage Policy and its Possible Implication Philippine Minimum Wage Policy

In the Philippines, private sector companies are skeptical regarding the minimum wage increase due to it reportedly on affecting a small portion of the population (those who pay for wages and those who earn minimum wage). However, examples such as Brazil shows that an increase of the minimum wage implies a rise in income not only for wage earners, but also for pensioners and the unemployed, whose benefits are linked to the minimum wage.

Minimum wage is an effective policy for stimulating domestic consumption, and in times of crisis, can help mitigate the effects of recession. In response to the economic crisis, the Brazilian

The country has more than 6 million small- and medium-sized enterprises, representing 52% of Brazil’s formal jobs. In January 2014 alone, SMEs created 47,700 new jobs in Brazil, according to the Brazilian Service of Support for Micro and Small Enterprises. On a global stage, São Paulo, Brazil’s capital, is home to 40 percent of entrepreneurs who head the fastest growing SMEs in the country. The Brazilian Southeast (Espirito Santo, Minas Gerais, Rio de Janeiro, and São Paulo) is home to 57% of the 250 fastest growing SMEs. These businesses grew an average of 25 percent between 2010 and 2012. This data shows that minimum wage spikes will greatly affect these businesses for both unskilled workers and SME’s, however current trends show no drastic negative effects of these changes towards either parties concerned.

It is also important to note that Brazil’s economy is currently emerging from a severe and prolonged recession. The economy entered into recession in 2014 and the situation worsened in 2015, with real GDP likely to have declined by 3%, while inflation has remained close to 10%. Some of the reasons for the slump in the country’s economy were political uncertainty, lower consumer and business confidence, and low investment. Persistently low commodity prices have also impacted economic

In the first decade of the century, Brazil benefitted from strong demand – particularly from China – for some of its key export commodities (e.g. iron ore, soybeans and raw sugar). Supported by positive terms of trade effects, Brazil’s annual GDP growth rate averaged 3.1% over this period. Since the fall in commodity prices in 2011 during the economic recession(see graph 4), these terms of trade effects have reversed. With Brazil in an strong situation to weather a recession prior to the decrease in price of their main exported goods, based on the data their good situation then was not a strong enough buffer alone to prevent their real GDP growth from declining below negative ranges. That, coupled with political uncertainty due to the recent impeachment of former president Dilma Rousseff, further worsened the situation for Brazil causing political uncertainty. Sadly, the Philippines is in a very similar