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Determinants of Changing Informal Employment in Brazil, 2000–2010

Listed author(s):
  • Fairris, David
  • Jonasson, Erik

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.

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File URL: https://mpra.ub.uni-muenchen.de/71475/1/MPRA_paper_71475.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 71475.

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Date of creation: 28 Feb 2016
Handle: RePEc:pra:mprapa:71475
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  1. David Fairris & Gurleen Popli & Eduardo Zepeda, 2008. "Minimum Wages and the Wage Structure in Mexico," Review of Social Economy, Taylor & Francis Journals, vol. 66(2), pages 181-208.
  2. Francisco Carneiro, 2004. "Are Minimum Wages to Blame for Informality in the Labour Market?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 31(4), pages 295-306, December.
  3. Rita Almeida & Pedro Carneiro, 2012. "Enforcement of Labor Regulation and Informality," American Economic Journal: Applied Economics, American Economic Association, vol. 4(3), pages 64-89, July.
  4. Corseuil, Carlos Henrique L. & Foguel, Miguel Nathan, 2012. "Economic expansion and increase in labout market formality: A poaching approach," Revista Brasileira de Economia - RBE, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 66(2), June.
  5. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
  6. Almeida, Rita & Carneiro, Pedro, 2009. "Enforcement of labor regulation and firm size," Journal of Comparative Economics, Elsevier, vol. 37(1), pages 28-46, March.
  7. Anjali Kumar & Manuela Francisco, 2005. "Enterprise Size, Financing Patterns, and Credit Constraints in Brazil : Analysis of Data from the Investment Climate Assessment Survey," World Bank Publications, The World Bank, number 7330.
  8. Ana Carla A. Costa & João M. P. De Mello, 2008. "Judicial Risk and Credit Market Performance: Micro Evidence from Brazilian Payroll Loans," NBER Chapters,in: Financial Markets Volatility and Performance in Emerging Markets, pages 155-184 National Bureau of Economic Research, Inc.
  9. Lemos, Sara, 2009. "Minimum wage effects in a developing country," Labour Economics, Elsevier, vol. 16(2), pages 224-237, April.
  10. Straub, Stéphane, 2005. "Informal sector: The credit market channel," Journal of Development Economics, Elsevier, vol. 78(2), pages 299-321, December.
  11. Amadeo, Edward Joaquim & Gill, Indermit S. & Neri, Marcelo Cortes, 2000. "Brazil: the pressure points in labor legislation," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 395, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  12. 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.
  13. Paz, Lourenco, 2012. "The effect of trade liberalization on payroll tax evasion and labor informality," MPRA Paper 39545, University Library of Munich, Germany.
  14. Leopoldo Tornarolli & Diego Battistón & Leonardo Gasparini & Pablo Gluzmann, 2014. "Exploring Trends in Labor Informality in Latin America, 1990-2010," CEDLAS, Working Papers 0159, CEDLAS, Universidad Nacional de La Plata.
  15. Fabio Veras Soares & Rafael Perez Ribas & Rafael Guerreiro Osório, 2007. "Evaluating the Impact of Brazil?s Bolsa Família: Cash Transfer Programmes in Comparative Perspective," Publications 1, International Policy Centre for Inclusive Growth.
  16. Henley, Andrew & Arabsheibani, G. Reza & Carneiro, Francisco G., 2009. "On Defining and Measuring the Informal Sector: Evidence from Brazil," World Development, Elsevier, vol. 37(5), pages 992-1003, May.
  17. Berg, Janine, 2010. "Laws or luck? Understanding rising formality in Brazil in the 2000s," MPRA Paper 43608, University Library of Munich, Germany.
  18. Guillermo E. Perry & William F. Maloney & Omar S. Arias & Pablo Fajnzylber & Andrew D. Mason & Jaime Saavedra-Chanduvi, 2007. "Informality : Exit and Exclusion," World Bank Publications, The World Bank, number 6730.
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