Labor productivity in the Brazilian manufacturing industry edged down by 3.4% in the second quarter of 2018 on a quarter-over-quarter basis. The indicator interrupted the upward trend that had been observed since the second quarter of 2016, reinforcing the movement registered in the first quarter of the year, when it fell by 0.5% as compared to the fourth quarter of 2017.

Labor productivity falls by 3.4% in the second quarter of 2018

It is worth noting that the result for the second quarter is atypical due to the truck drivers’ strike in May. With economic activity returning to normal, the labor productivity indicator will likely reflect an increase in efficiency again. Between the first quarter of 2016 and the second quarter of 2018, productivity posted growth of 5.5%.

Between 2016 and 2017, the increase in productivity of Brazilian industrial workers was only outpaced by the rise in productivity of South Korean industrial workers (4.3% and 5.8%, respectively) as compared to Brazil’s top 10 trading partners. The Netherlands showed a performance very similar to that of Brazil (4.2% increase in productivity), followed by Argentina (3.8%) and Japan (3.3%). As a result, effective labor productivity – which compares Brazil’s performance to the average performance of its partners – grew by 2.3% during the period. This was the second largest increase in the indicator in the historical series started in 2000, reinforcing the recovery trend that has been observed since 2015.

Brazil’s productivity grows more than the average for its maintrading partners in 2017

SOUTH KOREA BRAZIL

NETHERLANDSARGENTINA

JAPANUNITED KINGDOM

GERMANYFRANCE

UNITED STATESITALY

5.8

-0.6

4.34.2

3.83.3

2.82.1

1.30.7

0.5MEXICO

Labor productivity growthManufacturing industry Output per hours workedCumulative change between 2016 and 2017 (%)

CNI IndicatorsYear 2 • Number 2 • April-June 2018

PRODUCTIVITY IN BRAZILIAN MANUFACTURING

2

Productivity in brazilian manufacturing Year 2 • Number 2 • April-June 2018

Labor productivity in the Brazilian manufacturing industry – measured as the amount of output divided by the amount of hours worked in production – decreased by 3.4% in the second quarter of 2018 on a seasonally adjusted quarter-over-quarter basis. On the same comparison basis, the amount of output produced by the sector experienced a 2.9% decline, while hours worked grew by 0.5%.

The result reflects the impact of the truck drivers’ strike occurred in May on economic activity. Between April and May 2018, the amount of output produced by manufacturing fell by 12.4%, while hours worked edged down by 1.7%, both on a seasonally adjusted basis.

The sector showed a recovery in June, but did not completely return to the levels observed before the truck drivers’ strike, as shown by the comparison between the first and second quarters of the year.

Productivity is down for the second consecutive quarter, almost interrupting the upward trend observed since the second quarter of 2016. The

Productivity reinforces downward trenddeclines partly reversed the gains accumulated between the first quarter of 2016 and the fourth quarter of 2017 (9.8%). Nevertheless, between the first quarter of 2016 and the second quarter of 2018, the result is still positive: productivity is up by 5.5%.

Compared with the same quarter a year ago, the result also remains positive, but one can see a sharp slowdown in the pace of productivity growth in the last quarter: the growth rate fell from 5.5% in the fourth quarter of 2017 to 3.4% in the first quarter of 2018 and to 0.4% in the second quarter of 2018.

The result for the second quarter is atypical on account of the truck drivers’ strike. With economic activity returning to normal, the labor productivity indicator is expected to reflect an increase in efficiency again. In the third quarter of 2018, productivity is expected to increase at a faster pace than in the same quarter of 2017.

Quarterly labor productivity, Brazilian manufacturing industryOutput per hours worked

Seasonally adjusted - Index, base: 2010 average = 100

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

2000

Q1

2001

Q3

2003

Q1

2004

Q3

2006

Q1

2007

Q3

2009

Q1

2010

Q3

2012

Q1

2013

Q3

2015

Q1

2016

Q3

2018

Q1

90

100

110

120

106.02018Q2

LABOR PRODUCTIVITY IN BRAZILIAN INDUSTRY

3

Productivity in brazilian manufacturing Year 2 • Number 2 • April-June 2018

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

Quarterly labor productivity, Brazilian manufacturing industryOutput per hours worked

Change compared to the immediately preceding quarter, seasonally adjusted (%)

2015Q4

2016Q1

2016Q2

2016Q3

2016Q4

2017Q1

2017Q2

2017Q3

2017Q4

2018Q1

2018Q2

0.1 -1.4 1.7 1.3 0.6 1.2 1.1 2.1 1.5 -0.5 -3.4

In 2017, effective labor productivity – which compares the evolution of labor productivity in Brazil with the average productivity of the country’s main trading partners1 – grew by 2.3% as compared to 2016. This was the second largest increase in the historical series started in 2000, reinforcing the recovery trend in the indicator that has been in place since 2015.

Between 2016 and 2017, labor productivity in the Brazilian manufacturing industry grew by 4.3%. Compared with Brazil’s top 10 trading partners, only the South Korean industry experienced a higher increase in productivity (5.8%). The Netherlands industry performed very similarly to the Brazilian industry, with an increase of 4.2%. Besides these countries, Argentina and Japan stand out with significant increases (3.8% and 3.3% respectively). The Mexican industry was the only one to record a decline in labor productivity (-0.6%) during the period.

Despite recent gains in competitiveness, the country needs to advance further. In the first half of the last decade (2007-2012), labor productivity in the Brazilian manufacturing industry showed a 0.8% decline. Among Brazil’s top 10 trading partners, only Japan recorded a

Brazil’s productivity is 2.3% higher than the average for its main trading partners in 2017

decline in productivity in this five-year period (-7.6%). The South Korean, Argentine and French industries recorded productivity gains of 26.1%, 10.7% and 9.3% respectively. Compared to the average performance of Brazil’s partners, the country’s labor productivity was 6.7% lower during the period.

In the second five-year period (2012-2017), labor productivity in the Brazilian manufacturing industry rebounded, particularly during the recessionary years2 , and posted growth of 9.1%. Brazil showed the same performance as that of South Korea (also with a 9.1% increase). They were only outperformed by France, Germany and the Netherlands, whose productivity gain stood at about 10%. As a result, effective labor productivity grew by 5.2% in the second period.

Despite the gain in recent years, effective labor productivity still shows negative growth (-1.8%) over the last decade (2007 to 2017). Brazil’s performance (8.2% growth) was much lower than that of its main trading partners, notably: South Korea (up by 37.5%), France (20.5%), Argentina (12.7%) and the Netherlands (12.3%). Compared to 2000 – the year when the historical series started – effective labor productivity is down by 19.5%.

INTERNATIONAL COMPARISON

1 United States, Argentina, Germany, Mexico, Japan, France, Italy, South Korea, the Netherlands, and the United Kingdom. China is not considered due to lack of information.2 During the crisis, less productive plants end up closing down. And as companies are forced to reduce their headcount, they seek to retain their most productive workers and lay off the least productive employees. Added to this effect is the behavioral change of both companies and workers, who make further efforts to preserve their positions during the recessionary period (see CNI. Productivity closes 2017 on the rise. Productivity in Brazilian Manufacturing. Year 1, No. 2, Oct-Dec 2017).

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

i

Effective labor productivity, Manufacturing industryOutput per hours worked

Index, base: 2000=100

Source: Prepared by CNI based on statistics from ADB, BLS, FUNCEX, IBGE, INDEC, INEGI, KOSIS, METI, Ministry of Health, Labor and Welfare, MOEL, OECD, The Conference Board and CNI.

65

70

75

80

85

90

95

100

105

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Labor productivity in Brazil and its main trading partners and effective labor productivity, Manufacturing industry Output per hours worked

Cumulative change (%)

Source: Prepared by CNI based on statistics from ADB, BLS, FUNCEX, IBGE, INDEC, INEGI, KOSIS, METI, Ministry of Health, Labor and Welfare, MOEL, OECD, The Conference Board and CNI.

YEAR BRAZIL UNITED STATES ARGENTINA GERMANY MEXICO JAPAN FRANCE ITALY SOUTH

KOREA NETHERLANDS UNITED KINDGOM

EFFECTIVE LABOR PRODUCTIVITY

ANNUAL

2011 -0.8 0.7 5.4 4.7 2.1 -2.4 4.0 2.0 3.0 4.0 2.2 -3.3

2012 -0.6 -0.8 -2.8 -2.4 2.4 -0.1 0.6 1.1 0.6 0.2 -2.3 0.5

2013 2.7 0.9 1.7 -0.7 -0.2 1.2 1.9 1.4 1.6 -0.4 -1.8 1.8

2014 -0.3 0.0 -1.7 4.4 1.9 2.1 2.2 1.9 0.6 1.8 3.0 -1.0

2015 0.3 -1.5 1.2 1.1 -0.5 -2.0 1.6 3.0 -1.4 1.8 -0.1 0.4

2016 1.8 0.4 -3.0 2.8 -1.5 -0.3 2.8 -0.4 2.4 2.2 0.1 1.7

2017 4.3 0.7 3.8 2.1 -0.6 3.3 1.3 0.5 5.8 4.2 2.8 2.3

LAST DECADE

2007-2012 -0.8 6.3 10.7 1.1 6.7 -7.6 9.3 5.1 26.1 2.1 4.9 -6.7

2012-2017 9.1 0.4 1.8 10.1 -0.9 4.3 10.3 6.5 9.1 10.0 3.9 5.2

2007-2017 8.2 6.8 12.7 11.3 5.8 -3.6 20.5 11.9 37.5 12.3 9.0 -1.8

Productivity in brazilian manufacturing Year 2 • Number 2 • April-June 2018

PRODUCTIVITY IN BRAZILIAN MANUFACTURING | English version of “Produtividade na Indústria - Ano 2 Número 2 Abr-Jun 2018” | Quarterly publication of the National Confederation of Industry - CNI | www.cni.com.br | Policy and Strategy Directorate - DIRPE | Research and Competitiveness Unit - GPC | Executive manager: Renato da Fonseca | Team: Renato da Fonseca and Samantha Cunha | Editing Unit | Coordinator: Carla Gadelha | Graphic design: Simone Marcia Broch | Customer Service - Phone: +55 (61) 3317-9992 - email: sac@cni.com.br. This publication may be reproduced, provided that the source is mentioned. Document prepared on September 13, 2018.