Working Paper: CEPR ID: DP16117
Authors: Niklas Engbom; Gustavo Gonzaga; Christian Moser; Roberta Olivieri
Abstract: Using rich administrative and household survey data spanning 34 years from 1985 to 2018, 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 changes show cyclical movements in Brazil that are similar to those in developed countries like the US. Relative to the formal sector, the informal sector is associated with a significant earnings penalty and higher earnings volatility for identical workers. Earnings changes of workers who switch from formal to informal (from informal to formal) employment are relatively negative (positive) and large in magnitude, dispersed, negatively (positively) skewed, and less leptokurtic. Our results suggest that informal employment is an imperfect insurance mechanism.
Keywords: earnings inequality; earnings dynamics; higher-order moments; informality
JEL Codes: J31; J46; J62; D31; D33; E24; E26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| informal employment (J46) | earnings penalty (J31) |
| informal employment (J46) | earnings volatility (G17) |
| formal to informal transition (J46) | negative earnings changes (G19) |
| informal to formal transition (J46) | positive earnings changes (O00) |
| formalization (L23) | reduced earnings volatility (G59) |
| worker selection (J29) | informal earnings penalty (J46) |