Institutions, Informality, and Wage Flexibility
AbstractEven though institutions are created to protect workers, they may interfere with labor market functioning, raise unemployment, and end up being circumvented by informal contracts. This paper uses Brazilian microeconomic data to show that the institutional changes introduced by the 1988 Constitution lowered the sensitivity of real wages to changes in labor market slack and could have contributed to the ensuing higher rates of unemployment in the country. Moreover, the paper shows that states that faced higher increases in informality (i.e., illegal work contracts) following the introduction of the new Constitution tended to have smaller drops in wage responsiveness to macroeconomic conditions, thus suggesting that informality serves as a escape valve to an over-regulated environment.
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Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 12/84.
Date of creation: 01 Mar 2012
Date of revision:
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Postal: International Monetary Fund, Washington, DC USA
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-04-23 (All new papers)
- NEP-HME-2012-04-23 (Heterodox Microeconomics)
- NEP-IUE-2012-04-23 (Informal & Underground Economics)
- NEP-LAB-2012-04-23 (Labour Economics)
- NEP-LAM-2012-04-23 (Central & South America)
- NEP-LMA-2012-04-23 (Labor Markets - Supply, Demand, & Wages)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Institutions, Informality, and Wage Flexibility: Evidence from Brazil
by Maximo Rossi in Wikiprogress América Latina on 2012-04-25 20:05:00
- Ahmed, Waqas & Choudhary, M. Ali & Khan, Sajawal & Naeem, Saima & Zoega, Gylfi, 2014. "Determinants of wage stickiness in a developing economy," Economic Modelling, Elsevier, vol. 38(C), pages 296-304.
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