Minimum wage, inequality and informality

Author(s)

Bruno Kawaoka Komatsu

• Document type: Master's Dissertation
• Press: São Paulo.
• Institution: Universidade de São Paulo (USP). Faculdade de Economia, Administração e Contabilidade (FEA/SBD)
• Defense date: 2013-12-02

Examining board members

Naercio Aquino Menezes Filho; Fernando Balbino Botelho; Carlos Henrique Leite Corseuil

• Advisor: Naercio Aquino Menezes Filho

Abstract

The Brazilian labour market has shown in recent years trends that draw attention and raise different issues from the point of view of the economic literature. From 2004, along with the reduction in the unemployment rate (which fell by half in less than a decade), the minimum wage shows real growth for nearly two-thirds of its value, wage inequality is significantly reduced, while the rate of formality reaches very high levels. Based on this background, this paper seeks to examine two issues central The first one is on the effects of raising the minimum wage on wage inequality. We use a methodology of counterfactual densities with data from the Monthly Employment Survey (PME), between 2004 and 2011, to assess the effects of changes in the minimum wage, increasing formalization and other two factors on the changes of wage densities. As a result of the previous literature, our estimates indicate that the first factor has significant effects on reducing wage dispersion, while the second factor effects are comparatively small. The second issue would be about the origin of the streams that fed the growing formal sector of the labour market. We use a discrete choice model to examine the determinants of transitions to formal work, again with the PME data, between 2002 and 2010. The probability of transition to formality increased from the five initial positions considered, especially from unemployment, while the outflows from formality towards informality and unemployment fell. Estimates indicate that men with higher levels of education, younger and with less time in the situation were more likely to formalization. Additional statistics show that the services sector was the one which most hired individuals entering new formal jobs, and that the largest portion of these workers was previously formal. Moreover, among the new formal employees, those who were previously unemployed or inactive had lower wages, which probably relates to unobservable factors. (AU)

• FAPESP's process: 11/16252-3 - Minimum wage, inequality and informality
• Grantee: Bruno Kawaoka Komatsu
• Support Opportunities: Scholarships in Brazil - Master