Wage Inequality and Job Stability
Ana Luisa Pessoa de Araujo
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Ana Luisa Pessoa de Araujo: Federal Reserve Bank of Minneapolis
No 5, Working Papers from Federal Reserve Bank of Minneapolis, Opportunity and Inclusive Growth Institute
How much wage inequality in Brazil is caused by firing costs? To answer this question, I develop and estimate a general equilibrium search and matching model with heterogeneous layoff rates among firms. Using matched employer-employee data from Brazil, I estimate the model, and I find that it replicates the observed residual wage inequality in the data. I simulate a counterfactual removal of existing firing costs, and I find that residual wage inequality drops by 26% as measured by wage variance and by 4.4% as measured by the p95-p5 ratio among 25- to 55-year-old males working in the private sector with at most a high school degree. Worker welfare among this subgroup of households increases by almost 1% in response to the abolishment of firing costs.
Keywords: Layoff rates; Earnings inequality; Firm heterogeneity; Matched employer-employee data; Wage differentials; Equilibrium search model (search for similar items in EconPapers)
JEL-codes: E61 J31 J63 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-lma and nep-mac
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