Institutions and Polarization: The Dynamics of Income Inequality in the Brazilian Labor Market from 1981 to 2011

20 Pages Posted: 14 Jun 2015

See all articles by Rogério Barbosa

Rogério Barbosa

Center for Metropolitan Studies; Department of Political Science - Universidade de São Paulo, Brazil

Ian Prates

Brazilian Center for Analysis and Planning (CEBRAP)

Date Written: May 28, 2015

Abstract

Over the last years, there was a continuous fall in labor income inequality in Brazil, as measured by household survey inquiries. The major explanatory factors pointed by economists were related to the composition of the workforce (in terms of skills and productive potential) and the technological changes. Institutional and relational factors were neglected. In this work, we argue that there are interpretive and empirical gains when we take into account sociological factors such as the occupational structure and the labor market institutions. We apply some decomposition methods and build counterfactuals to test this hypothesis and contrast it to the institutional approach, based on the occupational structure and the state regulation of work contracts. We analyze these dynamics in Brazil, from 1981 to 2011. We found a "skill-biased" polarization related to the educational composition effect. However, the average income gap between the educational groups have dropped (decline of returns). We also observed that there was a great reduction in internal variance of these educational groups. As a result, the net effect of education is a decrease in inequality; despite the existence of a component of polarization. There was also a great approximation of the incomes of the formal and informal sectors -- and they both have become internally more homogeneous. Our study found that the polarization pattern was offset by other factors. This raises a question about the strength of this process guided by the demand for skill and about the necessary conditions for its occurrence.

Keywords: polarization, income inequality, education, occupation, variance decomposition

JEL Classification: A14, J31

Suggested Citation

Jerônimo Barbosa, Rogério and Prates, Ian, Institutions and Polarization: The Dynamics of Income Inequality in the Brazilian Labor Market from 1981 to 2011 (May 28, 2015). Available at SSRN: https://ssrn.com/abstract=2616714 or http://dx.doi.org/10.2139/ssrn.2616714

Rogério Jerônimo Barbosa (Contact Author)

Center for Metropolitan Studies ( email )

São Paulo, São Paulo
Brazil

Department of Political Science - Universidade de São Paulo, Brazil ( email )

São Paulo
Brazil

Ian Prates

Brazilian Center for Analysis and Planning (CEBRAP) ( email )

Rua Morgado de Mateus, 615
Sao Paulo
Brazil

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