Urban Wage Premium in a labor market with informality∗

Abstract

This paper aims to revisit the relationship between the UWP and the agglomeration levels considering a source of heterogeneity not yet investigated: workers’ subgroups from different labor market sector Formal or Informal and, and treating wage earners differently from self-employed. We explore the Brazilian labor market using a longitudinal database that covers the whole country for the period from 2012 to 2019, that reflect the entire labor market, while almost all previous studies use administrative records of employers, thus restricting the UWP evidence to Formal workers. Our results reveal a new perspective for the UWP analysis in Brazil for elucidating the following points: (i) The UWP previously reported in the literature underestimate the real UWP when the role labor market is analyzed Formal and Informal workers. Formal workers present half of the UWP of Informal workers; (ii) Both sectors show a non-homogeneous UWP according to agglomeration levels but with different patterns within MAs. As the area becomes denser, the Formal workers UWP increases while Informal workers UWP decreases; (iii) The intra-groups heterogeneity analysis shows that only Formal wage earners have behavior in line with the literature, while other subgroups show a decreasing pattern with agglomeration levels. Again, evidence that disregarding these groups of workers hides the complexity inherent of their insertion in the large urban labor markets and; (iv) The characteristics related to occupational skill, workers schooling level, and tenure show UWP differentials according to the agglomeration level and also between the subgroups of workers.