Earnings Inequality and Dynamics in the Presence of Informality: The Case of Brazil

Abstract

Using a combination of rich administrative and household survey data, we document a series of new facts on earnings inequality and dynamics in a developing country with a large informal sector: Brazil. Since the mid-1990s, both inequality and volatility of earnings have declined significantly in Brazil's formal sector. Higher-order moments of the distribution of earnings innovations show similar cyclical movements in Brazil as in developed countries like the U.S. Earnings mobility is comparatively high, especially at the bottom of the distribution. Compared to the formal sector, earnings are more volatile in the informal sector. Workers who switch between sectors experience earnings innovations that have a positive mean and are positively skewed when moving to the formal sector but have a negative mean and are negatively skewed when moving to the informal sector. A secular shift of employment toward the less volatile formal sector since the early 2000s has contributed to a decline in the economy-wide volatility of earnings.

Inequality and dynamics of earnings and disposable income in Denmark 1987–2016

“…The pattern, where the difference between the 90th and 10th percentiles, p90-p10, is decreasing over the life cycle, is similar to Norway (Halvorsen, Ozkan, and Salgado (2022)) and Sweden (Friedrich, Laun, and Meghir (2022), and to some degree, France (Kramarz, Nimier-David, and Delemotte (2022)), Brazil (Engbom, Gonzaga, Moser, and Olivieri (2022)), Argentina (Blanco, Diaz de Astarloa, Drenik, Moser, and Trupkin (2022)), and Germany (Drechsel-Grau, Peichl, Schmid, Schmieder, Walz, and Wolter (2022)), but it appears not to be the typical pattern in Canada (Bowlus, Gouin-Bonenfant, Liu, Lochner, and Park (2022)), the UK (Bell, Bloom, and Blundell (2022)), Italy (Hoffmann, Malacrino, and Pistaferri (2022)), Spain (Arellano, Bonhomme, De Vera, Hospido, and Wei ( 2022)), and Mexico (Puggioni, Calderón, Cebreros Zurita, Fernández Bujanda, Gonzalez, and Jaume (2022)).…”

Earnings dynamics and its intergenerational transmission: Evidence from Norway

“…The higher initial inequality for newer cohorts mirrors the change in overall earnings inequality. Guvenen et al (2018) and Engbom, Gonzaga, Moser, and Olivieri (2022) also document that initial inequality and overall inequality track each other very closely in the U.S. and Brazil, respectively. 10 The life-cycle profile of earnings inequality is roughly similar for all cohorts: For men between 25 and 35 years old, within-cohort inequality declines by around 70 log points and remains relatively stable afterward.…”

“…The higher initial inequality for newer cohorts mirrors the change in overall earnings inequality. Guvenen et al (2018) and Engbom, Gonzaga, Moser, and Olivieri (2022) also document that initial inequality and overall inequality track each other very closely in the U.S. and Brazil, respectively 10…”

“…1010 For example, Guvenen et al (2018) show that the initial income dispersion (above the median) is higher for younger cohorts in the U.S., as is the recent overall earnings inequality (above the median). Engbom et al (2022) document that when overall inequality was increasing in Brazil (1985–1995), income inequality over the life cycle was also increasing. But with declining overall inequality starting in 1995, cohort profiles started to show decreasing inequality as well. …”

Earnings inequality and dynamics in the presence of informality: The case of Brazil

“…88 In Appendix B of the Online Supplemental Material (Engbom, Gonzaga, Moser, and Olivieri (2022)), we present results of an alternative definition of residual earnings that also conditions on the education group , …”