THE PENNSYLVANIA STATE UNIVERSITY ECONOMICS ASSOCIATION PRESENTS:

EDITOR: JOE KEARNS PRINT EDUCATION COORDINATOR

CONTRIBUTORS: MIKE BARNES, WAHHAJ IQBAL, JOE
KEARNS, COLE LENNON, CAMILLE MENDOZA SOTO
FALL SEMESTER 2014: VOLUME THREE
SEPTEMBER 30, 2014
THE OPTIMAL BUNDLE

In general, Brazilian workers
experience low unemployment
and relatively high job security
due to the countrys labor laws.
The Brazilian Labor Market: Putting Economic Theory to Shame
The labor market data for Brazil in the second quarter is inconceivable if one assumes that
unemployment and economic growth are inversely related. The economy is in a recession
facing an economic growth of -0.6% and high inflation at 6.51%, but it has defied conven-
tional economic theory by recording a record low unemployment rate of 5%. However, re-
ports show that the labor market is low on productivity, accounting for only 40% of the
GDP growth between 1990 and 2012. There are two reasons which explain the oddly low
unemployment rate in this economic climate. First, the labor laws in Brazil are strict and
make it hard for employers to fire the workers. The second reason is that, due to the upcom-
ing holiday season, the recruiting process is hard, which further discourages firms from fir-
ing employees, thereby keeping the unemployment rate low despite the recession. The low
unemployment rate offers a sense of optimism, but it fails to tell the whole story. WI
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bit.ly/1DWAeAB http://onforb.es/1rJ32I6
Income Inequality Improves: Taking Brazil Off the Hot Seat
Brazil is on the hot seat as income inequality remains relatively high and the middle class gets
weaker. Although Brazil has been facing economic issues for the past three years, there still
are valid reasons to be optimistic. It is true that the largest economy in South America has
been in a recession since the first half of the year. Nevertheless, pessimists downplay the evi-
dence which shows positive economic progress, and overstate the effect of slow investment
and waning economic activity since the FIFA World Cup. Brazil has continued to grow its
middle class, which now makes up 47% of the nations voters and 55% of the total population.
Poverty has also declined from 26% to 10% from 2002 to 2012. This year, Brazil was removed
from the United Nations World Hunger Map , which is a validation for the enormous effort
they put in in reaching this goal. The recent recession has sparked political unrest and finan-
cial instability, but the numbers show that Brazils quality of life is improving.MB
READ MORE: http://bit.ly/1ualBFL http://bit.ly/1temuJ6
The proportion of Bra-
zilians living in poverty
has declined in the past
decade.
Brazil's Education System: Not So Progressive After All
Brazil is proclaiming ordem e progresso in its education system victoriously before
it should. Although its literacy rate increased from 75% in 1980 to 90% in 2014 and
expenditure on education as a percentage of GDP has increased from 3.5% to 5.8%,
these statistics are misleading. For being such a progressive country, it ranks 131st in
literacy rate and 38th out of 40 in overall quality of education. If Brazil wants to com-
pete with global leaders, the government needs to drastically reform its education sys-
tem. Currently, the mandatory level of schooling only goes up to age 14, but extending
the mandate to 18 would ensure that parents keep their children in school longer. A
longer and stronger education will improve citizens skills , and spill over into other
aspects of the economy and help move Brazil into the top five world economies. Then,
and only then, would they be able proclaim ordem e progresso with well-deserved
confidence.CMS
Brazil trails many other
big economies in literacy
rate and overall quality of
education.
READ MORE: http://abcn.ws/10l0JjU http://on.wsj.com/1rk2bvz http://
nyti.ms/1qSveTj
Special Report on Brazil


An economy with a bright future is one that is making
massive growth gains while still underdeveloped. Brazil
has done just that, and its economy is now the seventh-
largest in the world. So Paulo of The Economist, how-
ever, reports that Brazils economy is one marked by
decline. Saying that alone is a huge overstatement, as
Paulo neglects to mention the great economic news of
Brazils past few decades. Brazils progress in reducing
income inequality, maintaining low unemployment, and
dramatically reducing poverty should not be dismissed,
as these accomplishments show the story of Brazils
economy is one of progress.

Brazil has had stubbornly high income inequality for
years, but is making strong headway in alleviating it.
Economists Jens Arnold and Joo Jalles published a
recent paper affirming that Brazil is reducing inequality
twice as fast as its regional peers. This achievement
comes as many advanced economies like the United
States have seen rising income inequality over the past
few decades. Another sign that pessimists are overre-
acting is the persistently low unemployment in the Bra-
zilian economy. Unemployment in Brazil has remained
below 6.5% since 2011. The current rate is around 5%,
which is considerably lower than its global counterparts
like the United States (6.1%) and the European Union
(10.2%).. Finally, another point which validates opti-
mism is Brazils progress on poverty reduction. Econo-
mists Jens Arnold and Joo Jalles conducted this re-
search and found that absolute poverty in Brazil has
steeply declined in the last decade. It went from 23.2%
to 5.9% from 2002 to 2012, meaning that the percent-
age of people living on less than two U.S. dollars a day
has fallen dramatically. These statistics help show Brazil
has been and continues to be moving in the right direc-
tion for millions of its citizens.

Any tales of Brazils decline are overstated. It has made
impressive strides in areas where other countries have
struggled. By decreasing income inequality, sustaining
low unemployment, and decreasing poverty, Brazil has
shown that it is a resilient economic power which can
resist international economic problems. Its economic
story over the past decade is a tale of significant pro-
gress. Despite much smaller difficulties along the way, it
is a tale that bears repeating. CL
A decade ago, the future looked bright for Brazil. That
future, however, is now and the Brazilian economy is in
a recession. President Dilma Rouseff has defended her
track record in the ongoing Presidential elections by
arguing that the labor market is strong and social pro-
grams have lifted millions out of poverty. Yet, markets
are pessimistic about the impact of Rouseffs efforts, as
the Bovespa Index fell 3.75% on Sept. 29. Falling invest-
ment, industrial output, and manufacturing illustrate
that Brazils economic anemia is no mere short-term
aberration. The lack of consumer and investor confi-
dence illustrates that the market conditions which cata-
pulted Brazil to prosperity in the past are gone and un-
likely to reappear in the near future.
Brazils economic growth fluctuated in the past decade
with spikes and falls of commodity prices due to its
Achilles heel: its lack of diversification. As a response to
inflationary fears, the central bank implemented tight
monetary policy which increased the relative value of
the real by 100%. Brazilian exports became more ex-
pensive to foreigners and the strengthening of the real
caused the manufacturing share of GDP to fall from
16.5% in 2004 to 13.5% in 2010. The signs of doom
were clear in 2012 when Ruchir Sharma, head of
Emerging Markets and Global Macro at Morgan Stanley
Investment Management, argued, Few developing na-
tions have sustained rapid growth for even one decade,
let alone two or three, and virtually all of those that
have did so by expanding their share of global manufac-
turing, not riding the tides of commodity prices.
Along with the decline in productivity which resulted
from past monetary policy, current fiscal and regulatory
policies continue to stifle an economic recovery. Ac-
cording to The Economist, Brazil takes in 36% of GDP
in taxes, while payroll taxes (58% of salary) are higher
than that of any other big economy. Brazilian firms re-
quire ten times the global average time length to pre-
pare its annual tax return, while strict labor laws have
led to more than 3 million court cases in a year. Many
obstacles stand in the way of building a stable and pros-
perous economic future. If she wins the election, Ms.
Rouseff would be wise to cease being one of them. JK
Brazil: An Economy of Progress Turn out the lights, the partys over
Psuea.org EA Homepage
Psuea.org/blog Education Blog
Upcoming
Events:
Oct. 1 Gallup U.S. Job Creation Index
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http://1.usa.gov/1bRMzLI http://
econ.st/1oSBEB8
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econ.st/10l0TaM http://bbc.in/1C9zdEB http://
on.barrons.com/1uanOAW http://
on.wsj.com/1nKp6wj
Is the Brazilian economy moving in the right direction?
Oct. 2 Jobless Claims