Individual earnings differentials by education level in Brazil: the greater inequality of the informal sector

In Brazil, workforce composition by age-education groups and distribution between the formal and informal sectors changed from 1980 to 2010. We estimate whether these area-level compositions reduced earnings of the least-educated individuals further. Our main hypothesis is that earnings are lower for residents of areas with higher proportions of less-educated and informal sector workers. Ordinary least squares (OLS) regressions performed on census data are used to estimate variations in male urban workers’ individual earnings, including several individual- and area-level independent variables. The main results suggest that an increase in the proportion of formal sector workers is positively associated with individual earnings. Higher group proportions have the strongest positive associations with individual earnings for formal sector workers with secondary and university education. Labour markets are not absorbing the least educated workers. The largest earnings differentials by education level are observed among informal sector workers, indicating greater economic inequality within this sector.