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Institutions, Informality, and Wage Flexibility: Evidence from Brazil

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Author Info

  • Irineu E. Carvalho Filho
  • Marcello M. Estevão

Abstract

Even 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 Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/84.

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Length: 61
Date of creation: 01 Mar 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/84

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Related research

Keywords: Economic models; Labor markets; Unemployment;

This paper has been announced in the following NEP Reports:

References

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  1. Baltagi, Badi H. & Blien, Uwe & Wolf, Katja, 2009. "New evidence on the dynamic wage curve for Western Germany: 1980-2004," Labour Economics, Elsevier, vol. 16(1), pages 47-51, January.
  2. Ulyssea, Gabriel, 2010. "Regulation of entry, labor market institutions and the informal sector," Journal of Development Economics, Elsevier, vol. 91(1), pages 87-99, January.
  3. Irineu E. Carvalho Filho & Marcos Chamon, 2008. "The Myth of Post-Reform Income Stagnation: Evidence from Brazil and Mexico," IMF Working Papers 08/197, International Monetary Fund.
  4. Koujianou Goldberg, Pinelopi & Pavcnik, Nina, 2003. "The response of the informal sector to trade liberalization," Journal of Development Economics, Elsevier, vol. 72(2), pages 463-496, December.
  5. Pedro Cavalcanti Ferreira & Roberto Ellery Jr & Victor Gomes, 2005. "Produtividade Agregada Brasileira (1970-2000): Declínio Robusto E Fraca Recuperação," Anais do XXXIII Encontro Nacional de Economia [Proceedings of the 33th Brazilian Economics Meeting] 062, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  6. Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, vol. 32(3), pages 385-397, August.
  7. Anna Sanz de Galdeano & Jarkko Turunen, 2005. "Real wages and local unemployment in the euro area," Working Paper Series 471, European Central Bank.
  8. Pedro Cavalcanti Ferreira & JosÈ Luiz Rossi, 2003. "New Evidence from Brazil on Trade Liberalization and Productivity Growth," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(4), pages 1383-1405, November.
  9. Alm, James & Bahl, Roy & Murray, Matthew N, 1991. "Tax Base Erosion in Developing Countries," Economic Development and Cultural Change, University of Chicago Press, vol. 39(4), pages 849-72, July.
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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Institutions, Informality, and Wage Flexibility: Evidence from Brazil
    by Maximo Rossi in Wikiprogress América Latina on 2012-04-25 20:05:00

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