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Brazilian Wage Curve: Further Evidence Based on Spatial Interactions in Times of Recession, 2012–2019

Author

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  • Guilherme Cemin Paula

    (Federal University of Paraíba)

  • André M. Marques

    (Federal University of Paraíba)

Abstract

This paper verifies the existence of a spatial Brazilian wage curve based on individual hourly real wages using quarterly data from the Brazilian National Household Sample Survey for the period 2012 to 2019, probably the largest dataset ever used in this field. Our spatial regression model enables us to estimate both the magnitude and dispersion of the local wage’s rigidity and its response to variations in the level of unemployment in neighbouring states—the spatial spillover. We find strong evidence for negative and significant spatial spillovers affecting local real hourly wages in the whole sample and 13 out of 20 different worker categories. For the entire sample, a 100% increase in local unemployment reduces the individual real wage in Brazil by 2.61% while the same increase in unemployment in contiguous states leads to an additional 1.00% reduction in wages. The findings indicate an overestimation of the real wage elasticity when the regression model neglects significant spatial autocorrelation. The results are robust to spatial effects present in the data, the weak instruments problem, and endogeneity of the regressors.

Suggested Citation

  • Guilherme Cemin Paula & André M. Marques, 2022. "Brazilian Wage Curve: Further Evidence Based on Spatial Interactions in Times of Recession, 2012–2019," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 65(3), pages 689-708, September.
    • Handle: RePEc:spr:ijlaec:v:65:y:2022:i:3:d:10.1007_s41027-022-00390-w
    DOI: 10.1007/s41027-022-00390-w
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    More about this item

    Keywords

    Labour market; Spatial wage curve; Unemployment; Spatial spillovers; Bargaining power;
    All these keywords.

    JEL classification:

    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General

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