INFORMALITY AND SEGMENTATION OF THE BRAZILIAN LABOR MARKET IN THE 2000s: A QUANTILE DECOMPOSITION OF EARNINGS DIFFERENTIALS

ABSTRACT

This paper decomposes the changes in the earnings differentials between formal and informal labor over the last decade in Brazil, between composition and segmentation effects, separately by gender. We use microdata from the Demographic Census of 2000 and 2010 and follow Machado and Mata’s (2010) method to decompose the changes along the earnings distribution with correction for sample selection. For women and men, the segmentation effect contributed to increase the earnings advantage to formal labor at the bottom of the earnings distribution, while the composition effect contributed by decreasing these differentials along the earnings distribution, but this effect is higher at the top than the bottom of the distribution. However, there are important differences by gender in the level and variation of these components over the period and along the earnings distribution. Inequality level is higher among women than among men, and the segmentation effect is more severe for female informal labor at the bottom of the distribution. On the other hand, the reduction in the composition effect along the earnings distribution was higher among women than among men, resulting in a decrease of the total differential, from the 30th quantil, higher for the female labor, although this differential remains lower for the male labor.

KEYWORDS:
informality; earnings differentials; decomposition; quantile regression; selection bias