Centro de Políticas Sociais

The paper gives a first step toward developing a methodology to quantify the effects of inflation and government regulation on short-run earnings dynamics. It also provides evidence on the patterns of wage adjustment adopted during the recent Brazilian experience.

The large variety of official wage indexation rules adopted in Brazil during the past two decades combined with the availability of monthly surveys on labor market outcomes makes the Brazilian case a good laboratory to test how regulation affects earnings dynamics. In particular, the combination of large sample sizes with the possibility of following the same worker for short period of time makes it possible to estimate the cross-sectional distribution of longitudinal statistics on actual earnings behavior (i. e. monthly and annual rates of change). The plot of the cross-sectional distributions of these longitudinal statistics generated from actual and artificial earnings data provides visual evidence on the impact of inflation and regulation on wage adjustment patterns.

The empirical strategy adopted here is to compare the distributions of longitudinal statistics extracted from actual earnings data with simulations generated from minimum adjustments requirements imposed by the Brazilian Wage Law. The analysis provides a series of measures of the extend to which Brazilian Wage Law Regulations impose biding constraints. The visual analysis of the distribution of wage adjustments is also useful in highlighting stylized facts that may lend to future empirical work.