Francisco Galrão Carneiro

On Defining and Measuring the Informal Sector

A range of alternative empirical definitions of informal activity have been employed in the literature. Choice of definition is often dictated by data availability. Different definitions may imply very different conceptual understandings of informality. In this paper the authors investigate the degree of congruence between three definitions of informality based on employment contract registration, social security protection, and the characteristics of the employer and employment using Brazilian household survey data for the period 1992 to 2001. The authors present evidence showing that 64 percent of the economically active population are informal according to at least one definition, but only 40 percent are informal according to all three. Steady compositional changes have been taking place among informal workers, conditional on definition. The econometric analysis reveals that the conditional impact of particular factors (demographic, educational attainment, and family circumstances) on the likelihood of informality varies considerably from one definition to another. The results suggest growing heterogeneity within the informal sector. Therefore, the authors argue that informal activity may be as much associated with entrepreneurial dynamism as with any desire to avoid costly contract registration and social protection. However, the authors confirm there is no a priori reason for entrepreneurial activity to be unprotected. Consequently definitions of informality based on occupation and employer size seem the most arbitrary in practice even if conceptually well-founded.

Wage determination in Brazil: The growth of union bargaining power and informal employment

This article examines wage determination in Brazilian manufacturing during the 1980s and early 1990s. It presents evidence to show that the reduction in state regulation of collective bargaining has led to the development of a system of wage determination which is increasingly characterised by rent sharing and insider trade union bargaining power. Real wages appear increasingly inflexible with respect to movements in open unemployment, with a large informal sector disciplining formal sector wage bargaining and cushioning the impact of broader labour market conditions. An important consequence of this is that the employment costs of a successful counter-inflationary strategy may be very severe.

The Changing Informal Labour Market in Brazil: Cyclicality versus Excessive Intervention

Although following an anti-cyclical behaviour over the last decade, Brazils informal sector seems to have grown recently as a response to excessive government intervention in the productive system. Despite high inflation and sluggish economic performance, Brazil continues to live with low unemployment and only sporadic social unrest. A substantial informal sector is thought to be acting as a cushion to help minimize labour market instability. This paper reviews the main concepts and methodologies proposed in the literature, summarizes the results obtained by different authors, and presents some additional information on the recent informalization of the Brazilian labour markets. Copyright Fondazione Giacomo Brodolini and Blackwell Publishers Ltd 1997.

Government Revenues and Expenditures in Guinea-Bissau: Causality and Cointegration

The paper establishes empirically the temporal causality and long run relationship between government expenditures and government revenues for the case of Guinea-Bissau - a low income country under stress (LICUS) in Africa. A macroeconomic model is developed to lay out the hypothesis of a spend-tax behavior in the countryi¯s public finances management system. Empirical validation is carried out by means of a traditional Granger-causality test and the estimation of an error correction model between expenditures and revenues.

Modelling Formal vs. Informal Employment and Earnings: Micro-econometric Evidence for Brazil

Many developing economies, especially in Latin America, appear to be experiencing structural growth in the size of their informal sectors, inconsistent with traditional views that the informal sector acts as a buffer against unemployment, or is symptomatic of segmentation in the labour market. This paper presents micro-econometric evidence for Brazil that challenges this conventional wisdom by showing that the distribution of earnings in the informal sector extends well into the upper range of the full distribution. A model of informal sector choice is estimated using selectivity-corrected predicted earnings for each individual in both informal and formal sectors. The results of this show that a higher predicted earnings differential between the informal and formal sector is associated with a greater probability of a worker being employed in the informal sector. Other characteristics associated with informal sector choice are establishment size, payment method, union status and position within the household. We conclude that informal employment may be a desirable form of labour market status for many in Latin America, rather than a consequence of structural segmentation or cyclical displacement.

Race and gender discrimination in the labor market: an urban and rural sector analysis for Brazil

The article investigates the existence of discrimination in the urban and rural labor markets in Brazil. Tests the hypothesis that returns to education are different for black and white workers, male and female, in the urban and rural sectors. The methodology used allows for the decomposition of the difference in the mean earnings of male and female workers in the urban and rural sectors in a share that can be explained by characteristics such as education, hours of work and experience, and in another share that reflects the existence of discrimination. The analysis is carried out with microdata from the National Household Surveys (PNADs) of 1992 and 1998. The choice of the period of analysis was made with the aim of investigating whether changes in the economic environment affect the standard of returns to education. The results suggest the existence of strong discrimination by gender and race, besides the presence of substantial wage differentials between urban and rural workers.

Revisiting the Fisher hypothesis for the cases of Argentina, Brazil and Mexico

This paper investigates the validity of the Fisher effect hypothesis that it is the interest rate that moves to adjust to anticipated changes in the rate of inflation. The analysis is carried out with monthly data for the period 1980-1997 for three countries that have a recent history of chronic high inflation: Argentina, Brazil and Mexico. A cointegration analysis provided evidence of a stable long-run equilibrium relationship between nominal interest rates and the inflation rate for the cases of Argentina and Brazil only.

Productivity effects in brazilian wage determination

Abstract The article investigates the characteristics of industrial wage determination in Brazil using time series data for 22 manufacturing sectors for 1985–1993. The idea is to verify whether changes in sectoral productivity are relevant to explain changes in sectoral nominal wages. First, we present in a descriptive way the results of a statistical investigation of the data. A second, more encompassing purpose of the article, is an attempt to interpret the results by means of a more elaborate econometric analysis. The evidence suggests that rent-sharing is indeed a pervasive feature of the Brazilian industrial labor market.

Unions and Interindustry Wage Differentials

Abstract We investigate the importance of trade unions in collective bargaining in the context of a developing country manufacturing labor market. The methodology we adopt to estimate wage differentials follows the method proposed by Haisken-DeNew, J. P. and Schmidt, C. M. (1997) Review of Economics and Statistics 79, 516–521, since it improves on the standard procedure popularized by Krueger, A. B. and Summers, L. H. (1988) Econometrica 56, 193–259. Our findings indicate that wage dispersion is far greater in the unionized sector of Brazilian manufacturing, in contrast to evidence from other countries.

the Impacts of the Minimum Wage on the Labor Market, Poverty and Fiscal Budget in Brazil

This paper aims at contributing to the debate regarding the role of the minimum wage in Brazil. This is carried out by assessing its potential effects on the labor market outcomes, as well in terms of poverty alleviation and fiscal impact. First, a succinct description of the institutional framework, the evolution of its real value over time, and a characterization of the profile of minimum wage earners are presented. Next, after a brief survey of theoretical views and empirical results found in the literature, the estimations, as well their implications in terms of minimum wage policies, are presented and discussed. Este trabalho procura contribuir para a discussao a respeito do papel do salario minimo no Brasil, avaliando os efeitos potenciais de politicas de salario minimo nos grandes agregados do mercado de trabalho, assim como sobre a incidencia de pobreza e seu impacto fiscal. A primeira parte descreve, de forma sucinta, o historico institucional do salario minimo desde sua criacao, a evolucao do seu valor real ao longo deste periodo, alem de fornecer a caracterizacao do perfil dos individuos que o recebem. A seguir, apos uma rapida apresentacao das diferentes visoes acerca do seu papel no plano teorico e uma revisao dos resultados encontrados no plano empirico, procede-se as estimacoes de seu impacto no emprego, salarios, pobreza e equilibrio fiscal.