Inspired by a programme in Germany, the Brazilian government has approved the Job Protection Plan (PPE in Portuguese) after negotiations that took two years and involved the auto industry and the metalworkers union.
It went into effect immediately but will be assessed by Congress and changes made occasionally. Employees affected by production cuts and redundancies will benefit from the plans.
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Certainly, automakers and auto parts manufacturers will be included. Some 20,000 jobs were eliminated in Brazilian car factories from early 2014 to late June this year. Anther 36,000 workers are on forced holiday or indefinite layoff. Some of these workers have been deemed surplus to requirements and may yet lose their jobs soon.
This scenario reflects the 18.5% drop in Brazilian car production to 1.276m units in the first half of this year compared to H1 2014. It was the worst industry performance since 2006. The June tally of 184,015 vehicles was the lowest for the month since 1999.
First half domestic 1.318m registrations were down 20.7% compared with H1 2014. Exports rose 16.6% (from a low comparative base) to 197,348 units. Exports by value were reduced 7.4% to US$5.5bn because the mix between light and heavy vehicles was poorer.
Until now, talking of shift reductions and wage cuts was taboo and strongly rejected by unions. The PPE anticipates an up to 30% reduction in shift hours and wages cut by up to 15% with the remaining 15% funded by the government through a fund that operates in parallel to unemployment insurance. This is limited to BRL900.84 monthly for six months, extendable for another six.
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By GlobalDataFor both the auto industry and metal workers, it is vital to preserve a trained and highly qualified labour force during such troubled times. PPE allows partial adjustment of shift times in much the same way assembly line volume can be adjusted, with no need to stop production completely as happens with layoffs. But such a plan will be only be effective if the union agrees.
On the government side, studies suggest it may be less costly to keep workers in reduced-hours employment than to lay them off and pay full unemployment insurance.
The plan anticipates wages and social costs will thus be 27% lower and offset the cost of re-hiring current workers and training new entrants when the situation improves.
Anfavea president Luiz Moan considers the new law ’employment insurance’ rather than ‘unemployment insurance’.
PPE will last only to late 2016. During this time the government will eye its operation and the effect on tax collection as well as how well it preserves jobs and the effect on public accounts and fiscal balance. A decision on continuing the programme will then be made.
PPE will not solve the problem for automakers with a surplus labour force for other reasons such as a declining market share they are unlikely to recover.
