The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
Jorge Alvarez, Felipe Benguria, Niklas Engbom, and Christian Moser
INTERNATIONAL MONETARY FUND
We document a large decrease in earnings inequality in Brazil between 1996 and 2012.
Using administrative linked employer-employee data, we fit high-dimensional worker and
firm fixed effects models to understand the sources of this decrease. Firm effects account for
40 percent of the total decrease and worker effects for 29 percent. Changes in observable
worker and firm characteristics contributed little to these trends. Instead, the decrease is
primarily due to a compression of returns to these characteristics, particularly a declining
firm productivity pay premium. Our results shed light on potential drivers of earnings