Brasilia, the Federal Capital of Brazil
Economy

Is the job stability of Brazilian public servants a paradise for consumption?

LABS columnist talks about the economic risks of an administrative reform on the Brazilian government–the next mission of the country after the Social Security Reform

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In Brasilia, the capital of the Brazilian government, the discussion about an eventual administrative reform, which could drastically change the way Brazilian public servants view their stability, is gaining ground.

The discussion is still embryonic, but sufficiently concrete to trigger a reflection on the guarantee of employment and income for 11.5 million people working directly or indirectly for the Brazilian government, according to the Institute of Applied Economic Research (Ipea).

Stability, of course, has a significant role on consumer behavior. In the Brazilian federal capital, despite a minimum variation from one year to the next, civil public servants account for basically half of the payroll.

In Brasilia, this means that for every BRL 2 spent, one comes from the public service.

No wonder, commerce and service sectors represent up to 90% of the economic activity of the Brazilian Federal District. With guaranteed money in their account every month, public servants tend to take more financial risks and spend more money on buying durable goods, and often have a hard time saving and managing everyday finances.

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Federal employees, with a strong concentration in Brasilia, have a higher income compared to other public servants. According to Ipea, when militaries are excluded from this calculation, the average remuneration of Brazilian public servants is $10,200, a huge salary by Brazilian standards.

“This expressive volume of resources ensures a considerable income mass, capable of reducing the negative impacts in times of crisis,” said economist Jusçanio Umbelino de Souza, from the Federal District Planning Company (Codeplan). “Brasilia has a crisis-dampening mattress,” he summarized.

In Brasilia, there is no (yet) thriving financial market or large industries. In the central region of the city called Pilot Plan, where the main public buildings designed by Oscar Niemeyer are, public servants dominate consumption.

In the luxury market, the Federal District disputes the position of third major market with the city of Belo Horizonte. Although this behavior has been much more intense a few years ago, residents of the federal capital usually change cars every three years. With financial stability, they feel comfortable to mend one financing contract after another.

Economist Carlos Eduardo de Freitas, former director of the Brazilian Central Bank, stresses that the high salaries of the public servants give to Brasilia a very unique economic life, focused essentially on trade and services. And job security, he added to this column, makes the servant have a slightly safer financial forecast on the horizon.

“But I do not see the scenario as a paradise for consumption. The guarantee of employment does not necessarily imply guarantee of salary,” said Freitas, remembering that the inflation still erodes the income of the average worker and that the salaries of the servants have not been readjusted for a long time. “Speaking of paradise, therefore, is an illusion. There is no paradise,” he amended.

Poor financial education–a topic I already covered here at LABS– helps explain the indebtedness of well-paid people. Earning well every month therefore does not guarantee that the bills will be paid on time. The frequent presence of moneylenders in the corridors of Congress and the Esplanade of Ministries in Brasilia illustrates this well.

On the other hand, it is worth remembering that, taking advantage of a privileged payroll, service providers and merchants in Brasilia often abuse of excessive profit margins, precisely because of the job stability of their potential clients.

It will be interesting to observe the reaction of the local economy in Brasilia when–and if– administrative reform advances. Thinking about this possibility can be, right now, somewhat educational for everyone who buys and sells anything in the Federal Capital.

Translated by Fabiane Ziolla Menezes