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New evidence on the wage curve: non-linearities, urban size, and spatial scale in Brazil

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  • Ana Maria Bonomi Barufi
  • Eduardo A. Haddad, Peter Nijkamp

Abstract

Agglomeration economies appear to have a significant impact on local labour markets. The interaction of workers and firms in dense urban areas may generate productivity advantages that result in higher wages. City size plays an important role in the relative bargaining power of workers and firms in the relevant labour market. When analysing the relationship between local wages and the business cycle – wage flexibility, measured by the wage curve –, this influence appears to be higher in informal sectors in less densely populated areas in Brazil. Therefore, large agglomerations are supposed to provide a higher bargaining power for workers, as they have more job opportunities. In addition, labour market dualism is an essential ingredient in the evaluation of the wage curve in developing economies. However, a dual labour market analysis should be conducted at the appropriate regional level (labour market areas), making it possible to find a relevant impact of city size on the relative bargaining power of workers and firms. Our study aims to shed new theoretical and empirical light on the importance of the wage curve, taking into account various specificities of developing economies. The applied modelling study in Brazil shows that wage flexibility is higher in less dense local labour markets and in the informal sector in relation to the formal sector. Furthermore, it is essential to control for unobserved local characteristics in order to obtain the ‘true’ elasticity of wages to local unemployment rates, and spatial effects should be accounted for when the unit of analysis is rather small. In this sense, a significant part of the difference between the formal and the informal sectors originates from spatial effects.

Suggested Citation

  • Ana Maria Bonomi Barufi & Eduardo A. Haddad, Peter Nijkamp, 2016. "New evidence on the wage curve: non-linearities, urban size, and spatial scale in Brazil," Working Papers, Department of Economics 2016_39, University of São Paulo (FEA-USP).
    • Handle: RePEc:spa:wpaper:2016wpecon39
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    Cited by:

    1. Antonio Soares Martins Neto, 2017. "Income distribution and external constraint: Brazil in the commodities boom [Income distribution and external constraint: Brazil in the commodities boom]," Nova Economia, Economics Department, Universidade Federal de Minas Gerais (Brazil), vol. 27(1), pages 7-34, January-A.

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    More about this item

    Keywords

    wage curve; informal sector; bargaining power; agglomeration; rural-urban dichotomy.;
    All these keywords.

    JEL classification:

    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J46 - Labor and Demographic Economics - - Particular Labor Markets - - - Informal Labor Market

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