Brazil: the pressure points in labor legislation

Brazil’s experience shows that the economic and political history of a country is a critical determinant of which labor laws influence wages and employment, and which are not binding. Long periods of high inflation, illiteracy of the workforce, and biases in the design and enforcement of labor legislation bred by the country’s socioeconomic history are all important in determining the reach of labor laws. Defying conventional wisdom, these factors are shown to affect labor market outcomes even in the sector of employment regarded as unregulated. Following accepted practice in Brazil, we distinguish regulated from unregulated employment by determining whether or not the contract has been ratified by the Ministry of Labor, viz., groups of workers with and without signed work booklet. We then examine the degree of adherence to labor laws in the formal and informal sectors, and finds “pressure points” – viz., evidence of the law on minimum wage, work-hours, and payment timing being binding on outcomes – in both the formal and informal sectors of the Brazilian labor market. The findings of the paper imply that in terms of the design of legislation, informality in Brazil is mainly a fiscal, and not a legal phenomenon. But the manner in which these laws have been enforced is also critical determinant of informality in Brazil: poor record-keeping has strengthened the incentives to stay informal that are already built into the design of the main social security programs, and ambiguities in the design of labor legislation combined with slanted enforcement by labor courts have led to workers effectively being accorded the same labor rights whether or not they have ratified contracts. The incentives to stay informal are naturally higher for workers who are assured of protection under labor legislation regardless of the nature of their contract, which only alters their financial relationship with the government. The paper concludes that informality in Brazil will remain high as long as labor laws remain ambiguous and enforced with a clear pro-labor bias, and social security programs lack tight benefitcontribution linkages and strong enforcement mechanisms.

Informal labor contracts: an analysis of the Brazilian experience

For representing an expressive souree of labor absorption, the jobs with informal labor eontraet have been reeeiving a eonsiderable attention among the speeialists in the Brazilian labor rnarket. This paper presents, eoneisely, some stylized faets about this labor rnarket segment, as well as some oftheir most eommon interpretations. We argue that sue h interpretations are, in general, not very integrated and a model trying to make them eompatible is developed. The model ineorporates both segmentation and workers with heterogeneity in qualifieation. The results of the analysis are shown to be eompatible with most of the observed faets.

Economic growth and complementarity between stages of human capital

We study the impact of the different stages of human capital accumulation on the evolution of labor productivity in a model calibrated to the U.S. from 1961 to 2008. We add early childhood education to a standard continuous time life cycle economy and assume complementarity between educational stages. There are three sectors in the model: the goods sector, the early childhood sector and the formal education sector. Agents are homogenous and choose the intensity of preschool education, how long to stay in formal school, labor effort and consumption, and there are exogenous distortions to these four decisions. The model matches the data very well and closely reproduces the paths of schooling, hours worked, relative prices and GDP. We find that the reduction in distortions to early education in the period was large and made a very strong contribution to human capital accumulation. However, due to general equilibrium effects of labor market taxation, marginal modification in the incentives for early education in 2008 had a smaller impact than those for formal education. This is because the former do not decisively affect the decision to join the labor market, while the latter do. Without labor taxation, incentives for preschool are significantly stronger.

The impact of public capital and public investment on economic growth: an empirical investigation

in this anicle we measure the impact of public sector capital and investment on economic growth. Initially, traditional growth accounting regressions are run for a cross-country data set. A simple endogenous growth model is then constructed in order to take into account the determinants of labor, private capital and public capital. In both cases, public capital is a separate argument of the production function. An additional data-set constructed with quarterly American data was used in the estimations of the growth mode!. The results indicate lhat public capital and public investment play a significant role in determining growth rates and have a significant impact on capital and labor returns. Furthermore, the impact of public investment on productivity growth was found to be positive and always significant for bolh samples. Hence. in a fully optimizing modelo we confmn previous results in the literature that lhe failure of public investment to keep pace with output growlh during the Seventies and Eighties may have played a major role in the slowdown of lhe productivity growth in the period. Anolher main outcome concems the output elasticity wilh respect to public capital. The coefficiem estimates are always positive and significant but magnitudes depend on each of lhe two data set used.

The effect of social security, demography and technology on retirement

This article investigates the causes in the reduction of labor force participation of the old. We argue that the changes in social security policy, in technology and in demography may account for most of the changes in retirement over the second part of the last century in the U.S. economy. We develop a dynamic general equilibrium model with endogenous retirement that embeds social security legislation. The model is able to match very closely the increase in the retirement rate of males aged 65 and older. It also quanti es the isolated impact on retirement and on the solvency of the social security system of the di¤erent factors. The model suggests that technological and demographic changes had a strong in uence on retirement, so that it would have increased signi cantly even if the social security rules had not changed. However, as the latter became much more generous in the past, changes in social security policy can account not only for a sizeable part of the expansion of retirement, but also for the most of the observed increase in the social security expenses as a share of GDP.

The effect of social security, demography and technology on retirement

This article investigates the causes in the reduction of labor force participation of the old. We argue that the changes in social security policy, in technology and in demography may account for most of the changes in retirement over the second part of the last century in the U.S. economy. We develop a dynamic general equilibrium model with endogenous retirement that embeds social security legislation. The model is able to match very closely the increase in the retirement rate of males aged 65 and older. It also quanti es the isolated impact on retirement and on the solvency of the social security system of the di¤erent factors. The model suggests that technological and demographic changes had a strong in uence on retirement, so that it would have increased signi cantly even if the social security rules had not changed. However, as the latter became much more generous in the past, changes in social security policy can account not only for a sizeable part of the expansion of retirement, but also for the most of the observed increase in the social security expenses as a share of GDP.

Informal wages in an economy with active labor courts

In most developing countries, job regulations and the justice branch interfere on several aspects of labor contracts. Inspired by this fact, we build a model that explores the role of labor courts in the determination of the di¤erence between formal and informal wages. We show that the presence of active labor courts in an environment where labor relations are subject to asymmetries of information reproduces features documented by the empirical literature. The main implications of our model are tested using Brazilian data.

On the efficiency of equal sacrifice income tax schedules

In an economy which primitives are exactly those in Mirrlees (1971), we investigate the efficiency of labor income tax schedules derived under the equal sacrifice principle. Starting from a given government revenue level, we use Werning’s (2007b) approach to assess whether there is an alternative tax schedule to the one derived under the equal sacrifice principle that raises more revenue while delivering less utility to no one. For our preferred parametrizations of the problem we find that inefficiency only arises at very high levels of income. We also show how the multipliers of the Pareto problem may be extracted from the data and used to find the implicit marginal social weights associated with each level of income.

Conditional labour supply, quantile functions in Brazil

The estimation of labor supply elasticities has been an important issue m the economic literature. Yet all works have estimated conditional mean labor supply functions only. The objective of this paper is to obtain more information on labor supply, by estimating the conditional quantile labor supply function. vI/e use a sample of prime age urban males employees in Brazil. Two stage estimators are used as the net wage and virtual income are found to be endogenous to the model. Contrary to previous works using conditional mean estimators, it is found that labor supply elasticities vary significantly and asymmetrically across hours of work. vVhile the income and wage elasticities at the standard work week are zero, for those working longer hours the elasticities are negative.

Labor supply, risk aversion and economic refrom in China

Economic reform in China has created a small, but fast-growing private sector that has spurred rapid productivity growth. Growth of the private sector is predicated upon continued labor movements away from state-run industries and into private firms. This paper presents a theory of labor market sectoral choice demonstrating that three factors determine private sector labor supply-the difference in wages between the state and private sectors, private sector wage risk and risk aversion. Estimation of the model using survey data provides strong support for the theory. We find that the riskiness of private sector earnings has a greater effect in discouraging workers from taking jobs in private firms than the wage premi um has in attracting workers.

Regional subsidies and industrial prospects of lagging regions

Large and sustained differences in economic performance across regions of developing countries have long provided motivation for fiscal incentives designed to encourage firm entry in lagging areas. Empirical evidence in support of these policies has, however, been weak at best. This paper undertakes a direct evaluation of the most prominent fiscal incentive policy in Brazil, the Fundos Constitucionais de Financiamento (Constitutional Funds). In doing so, we exploit valuable features of the Brazilian Ministry of Labor's RAIS data set to address two important elements of firm location decisions that have the potential to bias an assessment of the Funds: (i) firm “family structure” (in particular, proximity to headquarters for vertically integrated firms), and (ii) unobserved spatial heterogeneity (with the potential to confound the effects of the Funds). We find that the pull of firm headquarters is very strong relative to the Constitutional Funds for vertically integrated firms, but that, with non-parametric controls for time invariant spatial heterogeneity, the Funds provide statistically and economically significant incentives for firms in many of the targeted industries.

The determinantss of foreign direct investment distribution among the Brazilian states

O Investimento Estrangeiro Direto (IED) tem desempenhado um papel importante no esforço do Brasil para tornar-se uma economia orientada para o mercado. De 1995 a 2012 o Brasil recebeu $ 511.5 bilhões de dólares em IED. Em 2012, o Brasil foi o segundo país em desenvolvimento que mais recebeu IED e o quarto no mundo (UNCTAD).Devido à concentração geográfica, os estados brasileiros que são consideravelmente menos desenvolvidos e mais pobres, são aqueles que mais precisam de investimentos e que no entanto, não têm sido receptores relevantes de IED. Em 2010, os estados com os maiores estoques de IED foram São Paulo, com 42,3 por cento do total ($ 99,9 bilhões de dólares), Rio de Janeiro com 13,3 por cento ($ 31,4 bilhões de dólares) e Minas Gerais com 10,6 por cento do total ($ 25,1 bilhões de dólares). Como pode ser observado, apenas três dos vinte e sete estados brasileiros receberam cerca de 66 por cento do total de IED destinado ao Brasil.Dada tal diferenciação na distribuição de IED entre os estados brasileiros, o presente estudo busca explicar se o benefício tributário também é determinante para o fluxo de IED, além das demais variáveis já consideradas como determinantes em outros estudos. Dada a limitação de dados, realizamos duas análises econométricas com dados em painel: 1. Usando seis variáveis chaves: tamanho do mercado consumidor, a qualidade da mão de obra, infraestrutura, custo da mão de obra, carga tributária e benefício tributário (por macro regiões), nos anos de 1995, 2000, 2005 and 2010; 2. Usando cinco variáveis: as mesmas do primeiro modelo, excluindo o custo da mão de obra (por falta de dados) e utilizando os dados de benefício tributário por estado, nos anos de 2010, 2011 e 2012.

Labor earnings dynamics in post-stabilization Brazil

This paper analyzes both the levels and evolution of wage inequality in the Brazilian formal labor market using administrative data from the Brazilian Ministry of Labor (RAIS) from 1994 to 2009. After the covariance structure of the log of real weekly wages is estimated and the variance of the log of real weekly wages is decomposed into its permanent and transitory components, we verify that nearly 60% of the inequality within age and education groups is explained by the permanent component, i.e., by time-invariant individual productive characteristics. During this period, wage inequality decreased by 29%. In the rst years immediately after the macroeconomic stabilization (1994

After the demise of neoliberalism but not of conservatism, a third developmentalism?

Neoliberalism and developmentalism are the two alternative forms of economic and political organization of capitalism. Since the 2008 global financial crisis we see the demise of neoliberalism in rich countries, as state intervention and regulation increased, opening room for a third historical developmentalism (the first was mercantilism, the second, Fordism). Not only because of major market failures, not only because the market is definitely unable to assure financial stability and full employment, an active macroeconomic policy is being required. Modern economies are divided into a competitive and a non-competitive sector; for the coordination of the competitive sector the market is irreplaceable and regulation as well as strategic industrial policy will be pragmatically adopted following the subsidiarity principle, whereas for the non-competitive sector, state coordination and some state ownership are usually more efficient. Besides, the fact that capitalist economies are increasingly diversified and complex is an argument against the two extremes – against statism as well as neoliberalism – in so far that they require market coordination combined with increased regulation. But the third developmentalism probably will not be progressive as was the second, because the social-democratic political parties are disoriented. They won the battle for the welfare state, which neoliberalism was unable to dismantle, but the competition of low wage developing countries and immigration continue to offer arguments to conservative political parties that defend the reduction of the cost of labor contracts or the or precarization of labor.

Labor rights, formality and spillovers: evidence from Brazil

Nós analisamos o efeito da emenda constitucional 72/13 no Brasil, que igualou direitos trabalhistas de empregadas domésticas a aqueles de outros empregados. Mostramos que, após a legislação, uma considerável cobertura midiática e um interesse público intensificado aumentou o conhecimento geral de direitos trabalhistas de empregadas domésticas. Como consequência, o não-seguimento de legislações trabalhistas no setor de serviços domésticos ficou mais difícil. Ao mesmo tempo, a necessidade de regulamentar adicionalmente a emenda fez com que custos trabalhistas ficassem praticamente inalterados. Usando uma abordagem de diferença-em-diferenças que compara ocupações selecionadas ao longo do tempo, mostramos que a emenda -- e a discussão que ela causou -- levou a um aumento na formalização e nos salários de empregados domésticos. Então, usando a heterogeneidade do impacto da emenda em grupos demográficos, nossos resultados mostram que emprego doméstico foi reduzido e que mulheres pouco qualificadas saíram força de trabalho e foram para empregos de menor qualidade. Testes de placebo e análises de robustez indicam que nossos resultados não são explicados por diversas interpretações alternativas.