Wage Dynamics in Urban Brazil: Evidence of Regional Segmentation or National Markets?

Abstract

In spite of Brazil's rapid pace of economic integration in recent decades, there remains substantial evidence of regional differences in wages. Numerous studies have also cited the impact of the country's form of economic development on various skill and occupational categories. On the other hand, macroeconomic models generally simplify labor market processes by assuming a single homogeneous national labor market. Arc wages in Brazil, then, determined by isolated regional, occupational, or nationwide factors? This study develops an econometric model for decomposing annual wage changes into national, occupational, and regional effects and applies it to data on male employees in Brazil's major urban areas to test whether the annual wage changes are more similar among occupational or local categories. It shows that wages are affected both by local conditions and national occupational trends, and furthermore that the underlying patterns of regional and occupational wage differentials are quite stable.