The latest labor market figures released by Brazil’s IBGE on Friday, November 28, 2025, show the unemployment rate has once again fallen below a historically low threshold, reaching 5.4% in the quarter ending October. This persistent decline, however, is accompanied by worrying signals of a cooling economy.
While the jobless rate continues to impress, the overall employment picture is more nuanced. The total workforce saw a 0.2% monthly decrease, and the participation rate, which measures the proportion of working-age individuals either employed or seeking work, also dipped to 62%. These shifts, coupled with a recent slowdown in job creation reported by the Caged, suggest a potential loss of steam in the labor market.
Experts are now debating whether the market has reached its cyclical floor, with some indicating a broader economic deceleration is underway. The IBGE’s PNAD Contínua, which captures a three-month moving average, tends to reflect economic trends with a slight lag. When these slowdown indicators appear in the PNAD, it often signals a more consolidated trend, according to specialists. This information was reported by Élida Oliveira.
Labor Market at a Crossroads
Rodolfo Margato, an economist at XP, notes that the unemployment rate remains historically low despite a gradual slowdown in domestic demand and ongoing labor shortages. He believes the PNAD and Caged data reinforce the scenario of a very tight labor market, even with signs of deceleration emerging in the latter half of 2025.
Similarly, Itaú Bank observes incipient signs of cooling in the labor market, with formal employment declining for the third consecutive month. This suggests that the robust job growth seen previously might be tapering off.
Ariane Benedito, chief economist at PicPay, suggests that the current situation, with a stabilizing employed population, indicates the labor market may have reached its cyclical bottom. She highlighted that the underutilization rate remains at 13.9%, and informality is stable at 37.8% of the employed population, reinforcing the idea that the momentum for improvement is losing intensity.
Participation Rate Decline and its Impact
A key factor contributing to the low unemployment rate is the declining participation rate. This metric, which tracks the percentage of the working-age population actively engaged in the labor force, has fallen consistently. According to a Banco Bradesco analysis, the participation rate dropped from 62.5% in July to 61.9%.
XP points out that this is the lowest level since December 2023 and significantly below pre-pandemic levels of 63.5%. A lower participation rate means fewer people are counted in the labor force, which can artificially lower the unemployment rate.
Employment Categories Show Weakness, Except Public Sector
The overall employed population has decreased for three consecutive months, according to Bradesco, with declines across most employment categories, with the exception of the public sector. The most significant reduction was observed among private sector workers without formal contracts, a trend that has persisted throughout the semester.
Wages Continue to Rise Amidst Tight Labor Market
Despite the signs of a slowing market, wages continue their upward trajectory as companies compete to attract and retain talent. Bradesco reports that average earnings grew by 0.4% from September to October, reaching approximately R$ 3,525 per month. This represents a 3.9% increase compared to the same month last year and a 3.6% rise over the past 12 months.
Future Projections and Inflation Concerns
Looking ahead, Ariane Benedito anticipates that after reaching its lowest point, the unemployment rate is likely to stabilize and may even see a slight increase in upcoming readings. PicPay projects an average annual unemployment rate close to 6%, indicating a resilient but gradually decelerating market.
XP estimates that the employed population will grow by 2% in 2025 compared to the previous year, with the unemployment rate expected to close the year at 5.9%. For 2026, the rate is projected to tick up to 6.3%. Real disposable income for households is expected to rise by 5.2% this year, according to XP.
Claudia Moreno, an economist at C6 Bank, warns that a strong labor market can keep the economy heated, posing a challenge for inflation control, particularly in the services sector. Consequently, C6 Bank believes the interest rate cut cycle may only begin in March 2026, with rates ending the year at 13%, a more conservative outlook than some other institutions.
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