Social Security Reforms and the Structure of the Labor Market: The Case of Brazil

Abstract

The purpose of this report is to document the scale of uncovered employment in Brazil and to describe the trends in this phenomenon at least since the transition to democracy in the late 1980s. Micro-data obtained from annual Brazilian household surveys from 1992 onwards are used to model the determinants of the "choice" that employees face between covered and uncovered employment, in order to address the question of whether uncovered employment arises as a consequence of segmentation in the labor market or because of what appears to be a genuine choice process on the basis of the costs and benefits of social protection. This modeling exercise allows us to attempt to identify the valuation that employees place on social protection, and to see whether this valuation accords with actual costs borne by employees. It also allows us to compute elasticities of relative labor supply (uncovered relative to covered) with respect to the wage differential that an individual employee might expect to enjoy from moving from one sector to the other. Aggregate time series data available on a monthly basis from 1982 onwards is then used to provide a time series econometric investigation of covered and uncovered employment levels. The outcome of the modeling approach is to provide estimates of labor demand elasticities in the two sectors.

Keywords: social security, minimum wages, employment