Labor productivity in the Brazilian manufacturing industry grew by 1.3% in the fourth quarter of 2017 as compared to the previous quarter. In the year, productivity rose by 4.5% from 2016’s levels.

Labor productivity is measured as the amount of output divided by the amount of hours worked. The increase in the indicator in 2017 reflects a 2.2% growth in output and a decline of the same order in hours worked.

The indicator has been trending upward since the second quarter of 2016, accumulating growth of 9.2% until the last quarter of 2017. In the last 10 years (2007-2017), labor productivity is up by 8.4%.

Productivity closes 2017 on the riseThis increase is explained by industry’s performance in recent years, particularly over the recession period. In the five-year period from 2007 to 2012, industry experienced a decrease in productivity (-0.7%), while in the five-year period from 2012 to 2017 it posted growth of 9.1%.

The reasons behind the recent increase in productivity deserve further investigation. However, it likely results from a shift in behavior by both companies and workers as a result of the economic crisis.

Growth in labor productivity in manufacturingOutput per hours worked

Annual change (%)

4.5

1.8

0.3

2015 2016 2017

PRODUCTIVITY IN BRAZILIAN MANUFACTURING

CNI IndicatorsYear 1 • Number 2 • October-December 2017

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Productivity in brazilian manufacturing Year 1 • Number 2 • October-December 2017

The economic literature has more than one explanation for a productivity increase during recessions. These explanations can be classified into two types: composition effect and behavioral effect.

The composition effect occurs as a result of the greater fragility of less productive plants, which are forced to close down due to the crisis. This leads to a decline in the proportion of less productive units in a country’s total manufacturing plants. A similar effect occurs among workers. As companies are forced to reduce activity and cut staff numbers, they seek to retain the most productive workers and dismiss the least productive ones, thus changing the workforce composition toward more productive employees.

The behavioral effect is explained by the fact that companies have to find ways to survive while workers have to find ways to keep their job. During a recession, as companies are pushed by falling revenues, they focus on becoming more efficient and reducing costs – i.e. on stepping up productivity. The slowdown in activity also makes it easier to implement changes in how production processes are managed and organized. Implementing these changes when there is idle capacity in the production line is easier than when companies are operating in full swing.

In recent years, Brazil has seen a decline in investment levels on account of the crisis, but companies that kept investing focused their investments mainly on improving processes. According to CNI’s Investment in Industry

survey, in 2010 32% of companies invested for the purpose of enhancing or introducing new production processes, while 53% directed their investments toward increasing or maintaining production capacity. In 2014, investments targeted at improving processes reached 47%, while those focused on improving capacity fell to 35%.

Workers also tend to work harder during recessions so as not to lose their job. A study conducted at a large US company with the aim of monitoring the productivity of each of its workers in the 2006-2010 period presents evidence of the behavioral effect. The authors concluded that during periods of high unemployment, productivity increases mainly as a result of increased efforts by workers1.

The recovery of labor productivity drives up competitiveness of Brazilian industry and helps bring the economy back on track. However, as shown by the previous edition of the Productivity in Industry publication, which compared Brazil’s productivity to that of its main trading partners, there is still a long way to go to offset the poor performance observed in previous years.

Brazil needs to drive forward the competitiveness agenda. Companies need to step up their investments in process and product innovation. The State is responsible not only for providing a business environment conducive to investment, but also for reducing the so-called Brazil Cost. It is not enough to have more productive companies if their competitiveness is undermined by inefficient infrastructure, excessive red tape, and legal uncertainty.

1 Lazear, P. E.; Shaw, L. K.; Stanton, C. Making Do with Less: Working Harder during Recessions. Journal of Labor Economics, vol. 34, n. S1, Part 2, January 2016.

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Productivity in brazilian manufacturing Year 1 • Number 2 • October-December 2017

Quarterly labor productivity, Brazilian manufacturing industryOutput per hours worked

Seasonally adjusted - Index, base: 2010 average = 100

Source: Prepared by CNI based on IBGE and CNI statistics.

2000

Q1

90

100

110

120

2001

Q3

2003

Q1

2004

Q3

2006

Q1

2007

Q3

2009

Q1

2010

Q3

2012

Q1

2013

Q3

2015

Q1

2016

Q3

2017

Q4

Quarterly labor productivity, Brazilian manufacturing industry Output per hours worked

QUARTER

SEASONALLY ADJUSTED INDEX

(BASIS: 2010 AVERAGE = 100)

SEASONALLY ADJUSTED QUARTER-OVER-QUARTER

CHANGE (%)

CHANGE FROM THE SAME QUARTER THE YEAR

BEFORE (%)

CUMULATIVE CHANGEIN FOUR QUARTERS(COMPARED TO THE SAME PERIOD THE YEAR BEFORE, %)

2015 - Q1 101.4 -0.6 0.9 -0.1

2015 - Q2 101.1 -0.3 0.1 0.4

2015 - Q3 101.5 0.4 0.5 0.7

2015 - Q4 101.1 -0.4 -0.1 0.4

2016 - Q1 100.6 -0.5 -0.2 0.0

2016 - Q2 103.2 2.6 3.3 0.9

2016 - Q3 103.5 0.3 2.1 1.3

2016 - Q4 103.5 0.0 1.3 1.6

2017 - Q1 105.4 1.8 3.5 2.6

2017 - Q2 107.3 1.8 3.0 2.4

2017 - Q3 108.5 1.1 5.4 3.3

2017 - Q4 109.9 1.3 5.7 4.5

Source: Prepared by CNI based on IBGE and CNI statistics.

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Productivity in brazilian manufacturing Year 1 • Number 2 • October-December 2017

Annual labor productivity, Brazilian manufacturing industry Output per hours worked

YEAR ANNUAL CHANGE (%)

2007 1.7

2008 -2.2

2009 0.7

2010 2.1

2011 -0.8

2012 -0.5

2013 2.6

2014 -0.3

2015 0.3

2016 1.8

2017 4.5

YEAR CUMULATIVE CHANGE (%)

Last decade

2007-2012 -0.7

2012-2017 9.1

2007-2017 8.4

Source: Prepared by CNI based on IBGE and CNI statistics.

PRODUCTIVITY IN BRAZILIAN MANUFACTURING | English version of “Produtividade na Indústria - Ano 1 Número 2 Out-Dez 2017” | Quarterly publication of the National Confederation of Industry - CNI | www.cni.org.br | Policy and Strategy Directorate - DIRPE | Research and Competitiveness Unit - GPC | Executive manager: Renato da Fonseca | Team: Renato da Fonseca and Samantha Cunha | CNI Publishing Center | Graphic Design Supervision: Alisson Costa | Customer Service - Phone: +55 (61) 3317-9992 - email: sac@cni.org.br. This publication may be reproduced, provided that the source is mentioned. Document prepared on February 20, 2018.

Learn moreFor more information, including previous editions, methodology and historical series, visit: www.cni.org.br/e_produtividadenaindustria

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