Wage Inequality, Firms and Informality: Theory and Evidence from Brazil

Advisor: Gabriel Ulyssea

The labor market in Brazil had significant changes between 2003 and 2012. Wage inequality, informality and unemployment decreased while the real minimum wage rose. Recent empirical evidence suggests that firms had an important role in these processes. This paper has two major features. First, I propose a search and matching model with heterogeneous firms and workers that takes into account several attributes of the Brazilian labor market such as informality, unemployment, minimum wage and wage variance between and within firms. Then, with an estimated model that fits important moments of the labor market in 2003, I make counterfactual exercises to quantify the determinants beneath the reduction of wage inequality.

M400