Labor earnings dynamics in post-stabilization Brazil

Abstract

This paper analyzes both the levels and evolution of wage inequality in the Brazilian formal labor market using administrative data from the Brazilian Ministry of Labor (RAIS) from 1994 to 2009. After the covariance structure of the log of real weekly wages is estimated and the variance of the log of real weekly wages is decomposed into its permanent and transitory components, we verify that nearly 60% of the inequality within age and education groups is explained by the permanent component, i.e., by time-invariant individual productive characteristics. During this period, wage inequality decreased by 29%. In the rst years immediately after the macroeconomic stabilization (1994-1997), this decrease is explained entirely by reductions in the transitory component, suggesting that the end of the macroeconomic instability was a relevant factor in reducing inequality. In the second sub-period (1998-2009), the decrease is mostly explained by reductions in the permanent component. Finally, we show that education and age account for a sizable share of the permanent component (54% on average).