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Informality, inequality, and performance pay in Brazil

Grant number: 13/26989-9
Support Opportunities:Scholarships in Brazil - Post-Doctoral
Effective date (Start): June 01, 2014
Effective date (End): September 08, 2015
Field of knowledge:Applied Social Sciences - Economics
Principal Investigator:Fabiana Fontes Rocha
Grantee:Ana Luísa Gouvêa Abras
Host Institution: Faculdade de Economia, Administração e Contabilidade (FEA). Universidade de São Paulo (USP). São Paulo , SP, Brazil


The goal of this work is to estimate the returns to different types of labor contracts in the Brazilian informal market. We will develop an empirical and theoretical framework in order to assess the returns and flexibility of different contracts and their relationship with labor income inequality among workers. The main hypothesis is that the informal market with unregistered workers has a higher incidence of performance pay contracts which are more flexible and generate higher inequality. This is an empirical question. On the one hand, performance pay leads to lower inequality if it offers a premium to unregistered informal workers. On the other hand, incentive pay generates more inequality if it responds more to idiosyncratic shocks than other work arrangements do. In the empirical part of the work, we will investigate whether performance pay contribute to higher inequality using the data from the IBGE Informal Urban Economy (ECINF) collected in 1997 and 2003. The information will be set up as a matched employer-employee database. This way the performance pay premium can be estimated controlling for firm and worker heterogeneity. The flexibility of different contracts will be tested using the city local unemployment rate from the National Survey of Household Sampling (PNAD) as a proxy for exogenous demand shocks. In the theoretical part of the work, the framework will be based in the labor contract and personnel economics literature. A two-part piece rate model will be built in order to explain sorting and returns in the informal labor market. The goal of the model is to replicate the premium and incidence of performance pay contracts among workers. (AU)

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