Earnings Inequality and Dynamics in the Presence of Informality: The Case of Brazil

Niklas Engbom, Gustavo Gonzaga, Christian Moser and Roberta Olivieri

No 16117, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Using rich administrative and household survey data spanning 34 years from 1985 to 2018, we document a series of new facts on earnings inequality and dynamics in a developing country with a large informal sector: Brazil. Since the mid-1990s, both inequality and volatility of earnings have declined significantly in Brazil’s formal sector. Higher-order moments of the distribution of earnings changes show cyclical movements in Brazil that are similar to those in developed countries like the US. Relative to the formal sector, the informal sector is associated with a significant earnings penalty and higher earnings volatility for identical workers. Earnings changes of workers who switch from formal to informal (from informal to formal) employment are relatively negative (positive) and large in magnitude, dispersed, negatively (positively) skewed, and less leptokurtic. Our results suggest that informal employment is an imperfect insurance mechanism.

Keywords: Earnings inequality; Earnings dynamics; Higher-order moments; Informality (search for similar items in EconPapers)
JEL-codes: D31 D33 E24 E26 J31 J46 J62 (search for similar items in EconPapers)
Date: 2022-01
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Journal Article: Earnings inequality and dynamics in the presence of informality: The case of Brazil (2022)
Working Paper: Earnings Inequality and Dynamics in the Presence of Informality: The Case of Brazil (2022)
Working Paper: Earnings Inequality and Dynamics in the Presence of Informality: The Case of Brazil (2021)
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