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Institutions, Informality, and Wage Flexibility; Evidence From Brazil

Author

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  • Irineu E de 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.

Suggested Citation

  • Irineu E de Carvalho Filho & Marcello M. Estevão, 2012. "Institutions, Informality, and Wage Flexibility; Evidence From Brazil," IMF Working Papers 12/84, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:12/84
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    References listed on IDEAS

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    Blog mentions

    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 2012-04-26 01:05:00

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    Cited by:

    1. Mark Weisbrot & Jake Johnston & Stephan Lefebvre, 2014. "The Brazilian Economy in Transition: Macroeconomic Policy, Labor and Inequality," CEPR Reports and Issue Briefs 2014-14, Center for Economic and Policy Research (CEPR).
    2. Brollo, Fernanda & Forquesato, Pedro & Gozzi, Juan Carlos, 2017. "To the Victor Belongs the Spoils? Party Membership and Public Sector Employment in Brazil," CAGE Online Working Paper Series 353, Competitive Advantage in the Global Economy (CAGE).
    3. 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.
    4. Fernanda Brollo, & Forquesato, Pedro & Gozzi, Juan Carlos, 2017. "To the Victor Belongs the Spoils? Party Membership and Public Sector Employment in Brazil," The Warwick Economics Research Paper Series (TWERPS) 1144, University of Warwick, Department of Economics.
    5. M. Ali Choudhary & Saima Mahmood & Sajawal Khan & Waqas Ahmed & Gylfi Zoega, 2013. "Sticky Wages in a Developing Country: Lessons from Structured Interviews in Pakistan," School of Economics Discussion Papers 0213, School of Economics, University of Surrey.
    6. Charlot, Olivier & Malherbet, Franck & Terra, Cristina, 2015. "Informality in developing economies: Regulation and fiscal policies," Journal of Economic Dynamics and Control, Elsevier, vol. 51(C), pages 1-27.

    More about this item

    Keywords

    Economic models; Brazil; Labor markets; Unemployment; Wage flexibility; Wages; informal work; regulations; wage; unemployment rate; employment; Institutions; Informality; and Wage Flexibility:; Wages; Compensation; and Labor Costs: General; Labor-Management Relations; Trade Unions; and Collective Bargaining: General;

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