Collective bargaining, the minimum wage, and the racial earnings gap: Evidence from Brazil

Department of Economics & Decision Sciences

Speaker : Claire Montialoux

Assistant Professor at UC Berkerley

Videoconference

Abstract :

This paper studies how a national minimum wage and firm- and sector- specific wage floors affect racial earnings disparities. Our context is the Brazilian economy, characterized by persistently high racial disparities, a tradition of extensive sectoral bargaining, and the availability of detailed labor force surveys and administrative matched employer- employee data with information on race. We first analyze the effect of the large increase in the minimum wage that occurred between 1999 and 2009. Using a variety of research designs and identification strategies, we obtain three main findings. First, the increase in the minimum wage erased the racial earnings gap up to the 10th percentile of the national wage distribution and up to the 30th percentile in the poorest region, the Northeast. Second, there is no evidence of a significant reallocation of workers from the formal sector to the informal sector. This can be explained by the fact that the minimum wage is de facto binding in the informal sector (with the exception of agriculture, domestic workers, and the self-employed). Third, we do not find evidence of significant dis-employment effects, or of whites-nonwhites labor-labor substitution. As a result, the minimum wage increases of the 2000s led to a large decline in the economy-wide racial income gap in Brazil. The second part of the paper studies the effect of negotiated firm- and sector-specific wage floors. Our preliminary results suggest a more nuanced picture. First, within firms, nonwhite workers appear slightly more likely to be in occupations not covered by a wage floor. Second, we find significant dynamic effects of the introduction of wage floors on the composition of the workforce, with a growing employment share in occupations not covered by wage floors in subsequent years. Taken together, these results suggest that comprehensive and uniform labor standards such as the minimum wage may be among the most powerful labor market institutions to reduce racial earnings disparities.