According to a research published recently by the Bank for International Settlements (BIS) and signed by senior central bank officials, home working in Brazil may be reducing wage pressure in an otherwise robust labour market.

Despite a rise in employment, economic policy director Diogo Guillen and economist Sergio Leao observed that earnings were still below pandemic levels, with college graduates experiencing the most decline in real income.

This implies that during the post-pandemic recovery, “working from home amenities may be playing a role in releasing wage pressure,” the authors stated.

In the three months ending in September, Brazil’s unemployment rate dropped to 7.7%, the lowest level since the three months ending in February 2015.

Even with a tight labour market, annual inflation started to decline again in October, dropping to 4.82%. Economists predict that the consumer price index will finish the year inside the target range set by the central bank.

Guillen and Leao came to the conclusion after examining a number of data sets that, before to the pandemic, having a higher percentage of college graduates in the workforce was linked to an increase in real wages; however, this effect has since reversed.

“One possible explanation…is that more educated workers, who have a greater chance of working remotely, have accepted lower nominal wage growth in exchange for the amenity value of increased job flexibility,” they said.

The central bank’s rate-setting committee, of which Guillen is a member, noted in the minutes of its most recent monetary policy meeting that, despite the declining unemployment rate, there was no indication of strong wage pressure in labour negotiations. The committee cut interest rates by 50 basis points to 12.25%, marking the third consecutive time that rates had been lowered.

In order to more accurately gauge the level of labour market slack and its possible influence on services inflation, the central bank announced that it will keep an eye on earnings trends. This is a crucial element that the bank considers when making policy choices.

(Adapted from Reuters.com)

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