New evidence on the wage curve: non-linearities, urban size, and spatial scale in Brazil

Ana Maria Barufi and Peter Nijkamp Eduardo A. Haddad ()

No 2016_39, Working Papers, Department of Economics from University of São Paulo (FEA-USP)

Abstract: Agglomeration economies appear to have a significant impact on local labour markets. The interaction of workers and firms in dense urban areas may generate productivity advantages that result in higher wages. City size plays an important role in the relative bargaining power of workers and firms in the relevant labour market. When analysing the relationship between local wages and the business cycle – wage flexibility, measured by the wage curve –, this influence appears to be higher in informal sectors in less densely populated areas in Brazil. Therefore, large agglomerations are supposed to provide a higher bargaining power for workers, as they have more job opportunities. In addition, labour market dualism is an essential ingredient in the evaluation of the wage curve in developing economies. However, a dual labour market analysis should be conducted at the appropriate regional level (labour market areas), making it possible to find a relevant impact of city size on the relative bargaining power of workers and firms. Our study aims to shed new theoretical and empirical light on the importance of the wage curve, taking into account various specificities of developing economies. The applied modelling study in Brazil shows that wage flexibility is higher in less dense local labour markets and in the informal sector in relation to the formal sector. Furthermore, it is essential to control for unobserved local characteristics in order to obtain the ‘true’ elasticity of wages to local unemployment rates, and spatial effects should be accounted for when the unit of analysis is rather small. In this sense, a significant part of the difference between the formal and the informal sectors originates from spatial effects.

Keywords: wage curve; informal sector; bargaining power; agglomeration; rural-urban dichotomy. (search for similar items in EconPapers)
JEL-codes: J31 J46 R12 (search for similar items in EconPapers)
Date: 2016-12-16
New Economics Papers: this item is included in nep-geo, nep-iue and nep-ure
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: NEW EVIDENCE ON THE WAGE CURVE: NON-LINEARITIES, URBAN SIZE, AND SPATIAL SCALE IN BRAZIL (2018)
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