Cover IMF Working Papers
Institutions, Informality, and Wage Flexibility: Evidence From Brazil
Author:
Mr. Irineu E de Carvalho Filho
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and
Mr. Marcello M. Estevãonull

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Series:
IMF Working Papers
Volume/Issue:
Volume 2012: Issue 084
Language:
English
Publication Date:
01 Mar 2012
DOI:
https://doi.org/10.5089/9781475502367.001
ISBN:
9781475502367
ISSN:
1018-5941
Pages:
27
Keywords:
WP; wage; wage curve; Wage flexibility; informal work; regulations; unemployment elasticity; shield wage; adjusted wage variable; wage sensitivity; wage demand; wage elasticity; wage rate; Labor markets; Wages; Unemployment rate; Unemployment
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Even though institutions are created to protect workers, they may interfere with labor market functioning, raise unemployment, and end up being circumvented by informal contracts. This paper uses Brazilian microeconomic data to show that the institutional changes introduced by the 1988 Constitution lowered the sensitivity of real wages to changes in labor market slack and could have contributed to the ensuing higher rates of unemployment in the country. Moreover, the paper shows that states that faced higher increases in informality (i.e., illegal work contracts) following the introduction of the new Constitution tended to have smaller drops in wage responsiveness to macroeconomic conditions, thus suggesting that informality serves as a escape valve to an over-regulated environment.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2012: Issue 084