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Wage Inequality Changes in Brazil: Market Forces, Macroeconomic Instability and Labor Market Institutions (1981-1997)

  • Andre Portela Souza

    ()

    (Department of Economics, Vanderbilt University)

In this paper, I examine the sources of wage inequality changes among prime age male workers in Brazil during the 1980's and 1990's. Inequality increased in the 1980's and decreased in the 1990's. I begin by decomposing these changes into three effects. First, the effect due to changes in the skill distribution of the workers; second, the effect due to changes in skill prices and premiums; and third, the residual effect which is interpreted as due to changes in the distribution of unobservable skills and their prices. I find that most of the sources of these changes are due to changes in (i) the unabservable skill prices and (ii) the observable skill prices associated to industry, occupation and occupation status. After showing that these changes in skill prices are not consistent with the changes in the supply of and demand for labor during these periods, I examine the possibility that the minimum wage policy and the macreconomic instability of the period can explain these changes. I find that inflation is strongly associated with inequality mainly due to its unanticipated component. This may be interpreted as indirect evidence that the indexation system adopted in Brazil during the high-inflation years may be a mechanism through which inflation affected wage inequality.

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File URL: http://www.accessecon.com/pubs/VUECON/vu02-w15.pdf
File Function: First version, 2002
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Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0215.

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Date of creation: May 2002
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Handle: RePEc:van:wpaper:0215
Contact details of provider: Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

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  1. David Card, 1984. "An Empirical Model of Wage Indexation Provisions in Union Contracts," NBER Working Papers 1388, National Bureau of Economic Research, Inc.
  2. Ehrenberg, Ronald G & Danziger, Leif & San, Gee, 1983. "Cost-of-Living Adjustment Clauses in Union Contracts: A Summary of Results," Journal of Labor Economics, University of Chicago Press, vol. 1(3), pages 215-45, July.
  3. Hamermesh, Daniel S, 1986. "Inflation and Labour Market Adjustment," Economica, London School of Economics and Political Science, vol. 53(29), pages 63-73, February.
  4. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-42, June.
  5. Almeida dos Reis, Jose Guilherme & Paes de Barros, Ricardo, 1991. "Wage inequality and the distribution of education : A study of the evolution of regional differences in inequality in metropolitan Brazil," Journal of Development Economics, Elsevier, vol. 36(1), pages 117-143, July.
  6. Hanson, G.H. & Harrison, A., 1995. "Trade, Technology and Wage Inequality," Papers 95-20, Columbia - Graduate School of Business.
  7. Richard B. Freeman, 1991. "How Much Has De-Unionisation Contributed to the Rise in Male Earnings Inequality?," NBER Working Papers 3826, National Bureau of Economic Research, Inc.
  8. David Blanchflower & L Katz & G Loveman, 1993. "A Comparison of Changes in the Structure of Wages in Four OECD Countries," CEP Discussion Papers dp0144, Centre for Economic Performance, LSE.
  9. Blinder, Alan S & Esaki, Howard Y, 1978. "Macroeconomic Activity and Income Distribution in the Postwar United States," The Review of Economics and Statistics, MIT Press, vol. 60(4), pages 604-09, November.
  10. Wood, Adrian, 1998. "Globalisation and the Rise in Labour Market Inequalities," Economic Journal, Royal Economic Society, vol. 108(450), pages 1463-82, September.
  11. Lam, David & Levison, Deborah, 1991. "Declining inequality in schooling in Brazil and its effects on inequality in earnings," Journal of Development Economics, Elsevier, vol. 37(1-2), pages 199-225, November.
  12. Nina Pavcnik, 2000. "What Explains Skill Upgrading in Less Developed Countries?," NBER Working Papers 7846, National Bureau of Economic Research, Inc.
  13. Cragg, Michael Ian & Epelbaum, Mario, 1996. "Why has wage dispersion grown in Mexico? Is it the incidence of reforms or the growing demand for skills?," Journal of Development Economics, Elsevier, vol. 51(1), pages 99-116, October.
  14. Wood, Adrian, 1997. "Openness and Wage Inequality in Developing Countries: The Latin American Challenge to East Asian Conventional Wisdom," World Bank Economic Review, World Bank Group, vol. 11(1), pages 33-57, January.
  15. Borjas, George J & Ramey, Valerie A, 1994. "Time-Series Evidence on the," American Economic Review, American Economic Association, vol. 84(2), pages 10-16, May.
  16. Revenga, Ana, 1997. "Employment and Wage Effects of Trade Liberalization: The Case of Mexican Manufacturing," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages S20-43, July.
  17. Richard B. Freeman & Lawrence F. Katz, 1995. "Differences and Changes in Wage Structures," NBER Books, National Bureau of Economic Research, Inc, number free95-1, October.
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