Determinants of Changing Informal Employment in Brazil, 2000–2010

This paper explores possible causal determinants of changing wage and salary informality over the period 2000–2010 in Brazil. We utilize demographic census and other institutional data sources from the opening and closing years of the decade, informality regressions in both years that exploit variation across workers and municipalities in informality rates and their causal determinants, and a Blinder-Oaxaca decomposition of changing mean informality rates over the decade. Among the determinants considered are: changes in labor law enforcement, a near doubling of the real value of the minimum wage, the emergence and growth of conditional cash transfer programs, and changing industry composition and labor force demographics. We find that two of the most important policy changes over this period – the increase in the real value of the minimum wage and the dramatic expansion of conditional cash transfer programs – contribute positively, not negatively to informality. Among the factors accounting for the decline in mean informality rates over this time are rising rates of labor law enforcement, rising education levels, increased numbers of workers with spouses in the formal sector, and changes in industry composition, which explain between 16% and 57% of the mean decline in informality over the period. However, most of the decline is accounted for by the changing estimated coefficients on the industry categorical variables – that is, by the changing way in which industrial composition translates into informality.