Urban Wage Premium in a Labor Market with Informality

39 Pages Posted: 4 Jan 2021

See all articles by Eloiza Almeida

Eloiza Almeida

Federal University of São Paulo (UNIFESP) - Group on Family and Gender Economics; Centro Brasileiro de analise e Planejamento CEBRAP

Veneziano Araujo

Federal University of São Paulo (UNIFESP)

Solange Gonçalves

Federal University of São Paulo (UNIFESP)

Date Written: October 29, 2020

Abstract

Few studies analyze how the urban wage premium is different for informal workers, and their results are controversial. This paper aims to clarify the reason for this mixed evidence, evaluating how workers’ heterogeneity in terms of labor contract - formal or informal - and occupational position - as wage-earner or self-employed - may impact the magnitude and direction of the UWP estimates. We address this investigation by analyzing the Brazilian labor market using the PNADC (IBGE) longitudinal database for the period from 2012 to 2019. The results show that formal workers present an increasing UWP according to the urban scale, as seen in many previous studies for developed or developing countries. In its turn, informal workers UWP is double the formal ones but is reduced in denser areas. Thus, our study shows previous UWP studies that focus only on formal workers could underestimate the magnitude of this premium for the whole labor market and that disregarding the groups of workers hides the complexity inherent of their insertion in the large urban labor markets. Also, different estimations highlight some mechanisms on the UWP explanation, such as sorting and matching. These results add new insights to the UWP in Brazil, signaling the importance of analyzing the whole labor market.

Keywords: Urban wage premium, Agglomeration levels, Informality, Workers' heterogeneity

JEL Classification: R23, J46, J31

Suggested Citation

Regina Ferreira de Almeida, Eloiza and Araujo, Veneziano and Gonçalves, Solange, Urban Wage Premium in a Labor Market with Informality (October 29, 2020). Available at SSRN: https://ssrn.com/abstract=3721640 or http://dx.doi.org/10.2139/ssrn.3721640

Eloiza Regina Ferreira de Almeida (Contact Author)

Federal University of São Paulo (UNIFESP) - Group on Family and Gender Economics ( email )

Rua Sena Madureira, 1500 - 5º andar
Vila Clementino
São Paulo, Sao Paulo 04021001
Brazil

Centro Brasileiro de analise e Planejamento CEBRAP ( email )

Veneziano Araujo

Federal University of São Paulo (UNIFESP) ( email )

Rua Sena Madureira, 1500 - 5º andar
Vila Clementino
São Paulo, Sao Paulo 04021001
Brazil

Solange Gonçalves

Federal University of São Paulo (UNIFESP) ( email )

Rua Sena Madureira, 1500 - 5º andar
Vila Clementino
São Paulo, Sao Paulo 04021001
Brazil

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