Regional labour markets in Brazil: the role of skills and agglomeration economies

The study of disparities in the equilibrium of regional labor markets is crucial in a developing country as Brazil, where personal and regional inequalities are extremely pronounced, even with the recent efforts to alleviate them. Following the recent literature on the determinants of productivity differentials in a regional context, this paper aims to discuss how agglomerations economies are present in the equilibrium outcomes of the Brazilian formal labor market. There has been a wide discussion on how to correctly identify agglomeration economies given all the different types of endogeneity found in the labor market relationships, as well as taking into account all the relevant aspects that may affect the results. We make use of an employer-employee panel database from the Ministry of Labor (RAIS - Annual Report on Social Information, filled by all registered firms in Brazil) with information for six year (2003, 2004, 2005, 2008, 2009 and 2012). The first part of the paper presents a discussion how higher wages can be found in denser areas, where the economic activity is more concentrated. Then, a literature review of agglomeration economies provides the main line of analysis to be pursued With the panel data setting, it is not only possible to account for individual unobserved characteristics constant in time, but also for sectorial and municipal fixed effects. Moreover, identifying skills according to the occupational position of the individuals in each firm, we control for the proximity to different skill levels (in the sector and municipality) to account for different levels of production knowledge externalities. Individual fixed effects control the potential endogeneity of the labor quality. In the case of labor quantity endogeneity, even if there is no consensus of how to best control for it, instruments based on long time lags are considered. The results show that there is a positive and significant effect of density over wages (Urban Economics literature), even when controlling for other relevant characteristics. Moreover, a measure of market potential, related to the New Economic Geography literature, does not capture this positive relationship with wages in the same way, changing sign in a specific setting. Finally, considering a quantile regression approach, there is an indication that agglomeration economies reinforce wage inequality, with a higher effect for the upper part of the wage distribution

Spatial mismatch, wages and unemployment in metropolitan areas in Brazil

The spatial mismatch hypothesis states that a lack of connection to job opportunities may affect an individual's prospects in the labour market, especially for low-skilled workers. This phenomenon is especially observed in large urban areas, in which low-skilled minorities tend to live far away from jobs and face geographical barriers to finding and keeping jobs. This paper aims to investigate whether this negative relationship between spatial mismatch and labour market outcomes is valid in Brazil after controlling for individual characteristics. Our conclusions indicate that there is no clear relation between different measures of accessibility to jobs and the probability of being unemployed. However, for wages there is a clear correlation, which is stronger in larger metropolitan areas in the country. Given the exploratory nature of this work, our results still rely on strong identification hypotheses to avoid potential bias related to simultaneous location decisions of workers and firms within the city. Even if these conditions do not hold, the results are still meaningful as they provide a better understanding of the conditional distribution of wages and the unemployment rate in the biggest metropolitan areas of Brazil

Regional dimensions of infant mortality in Brazil

O desenvolvimento pode ser estudado sob diversas perspectivas. Dentre estas, destaca-se a de Amartya Sen, na qual o objetivo maior de uma política de desenvolvimento é o de expandir a liberdade de escolha dos indivíduos. Partindo da ideia de ampliação das capabilities, define-se uma das dimensões consideradas como essenciais, a saúde, mais especificamente a mortalidade infantil, como objeto de estudo. Um dos papéis do Estado deve ser o de garantir a provisão de serviços de saúde para todos os indivíduos, já que ela pode ser classificada como um bem meritório. Em busca dos determinantes do padrão regional recente da mortalidade infantil no Brasil, utiliza-se o modelo de determinantes proximais proposto por Mosley e Chen (1984), no qual os fatores socioeconômicos influenciam indiretamente o resultado observado da variável de interesse. No Brasil, houve uma redução expressiva dos níveis de mortalidade infantil nas últimas décadas, mas ainda assim persiste uma intensa desigualdade regional. Com o objetivo de comparar os resultados alcançados localmente no país, é necessário incluir a dimensão espacial em um modelo econométrico para que os problemas decorrentes da dependência espacial possam ser evitados. Após utilizar o filtro espacial para tanto, estimando cross-sections para 1980, 1991 e 2000, o trabalho conclui que a infraestrutura de saúde, enquanto medida pelo número de leitos e de estabelecimentos perdeu importância na explicação do padrão da mortalidade infantil ao longo do tempo. Em contrapartida, as variáveis socioeconômicas tornaram-se mais relevantes e significativas. A implicação mais direta disso é que futuras políticas devem buscar melhorar o acesso das famílias aos serviços públicos de saneamento, reduzir a pobreza e a desigualdade e aumentar o nível educacional da população. Ou seja, o estímulo à prevenção familiar contra problemas que possam ocasionar a morte prematura torna-se cada vez mais essencial.Development can be understood from many perspectives. Among those, the one proposed by Amartya Sen states that a development policy should aim at expanding the freedom of individuals, and this goal can be achieved by the expansion of capabilities. With this conceptual framework in mind, health, more specifically infant mortality, is chosen as a measure of development and as the object of study. The Government should guarantee the provision of health services, as they consist in meritory goods. Mosley and Chen (1984) propose a theoretical framework to study infant mortality based on the proximal determinants, in which the socioeconomic factors affect the result observed indirectly. In Brazil there has been a substantial reduction of the average levels of infant mortality rates in the last decades. However, there is still a significant regional inequality. Econometric models for 1980, 1991 and 2000 are estimated including a spatial filter in order to account for the spatial dependency observed in the data. The study concludes that health infrastructure lost its explanative power for the differences in infant mortality rate among the localities. On the other hand, socioeconomic variables have become more relevant and significant. It means that future public policies must try to improve the access of the families to public facilities, reduce poverty and inequality and improve educational levels. Therefore, the family-based prevention against health problems should be stimulated, helping to avoid premature deat

Economias de aglomeração e mercados de trabalho no Brasil

Agglomeration economies have a relevant impact on local labour markets. The interaction of workers and firms in dense urban areas may generate productivity advantages that result in higher wages. They may be accompanied by an increase in local costs, but the existence of cities that continue to grow is a sign by itself that these gains supersede higher costs. Therefore, large urban areas have an expected positive impact on wages. However, not only the size of the city but also the sectoral composition is relevant to understand locational choices of firms of a specific sector. The industrial scope of agglomeration economies is investigated in the first chapter of this dissertation, and the main results indicate that there is not a unique optimal local industrial mix to foster productivity in different technological sectors. Furthermore, high-tech and low-tech manufacturing sectors benefit more from urban scale in Brazil, followed by services associated with higher knowledge intensity. These sectors are supposed to locate relatively more in large urban areas in order to profit from these advantages. Agglomeration economies may have static and dynamic effects for individuals. These effects are reinforced by a process of sorting of skilled workers into large urban areas. In fact, initial and return migration are mechanisms that select more skilled and more productive workers into large urban areas. Then, cities with a higher percentage of skilled workers attract more of these highly-qualified individuals. Second migration seems to reinforce these relations. The estimation of static agglomeration economies indicate that the inclusion of individual fixed effects decreases density coefficient significantly. Then, dynamic agglomeration economies are estimated considering previous work experience in cities. In this case, static agglomeration advantages become insignificant and whenever years of previous experience are combined with the current place of work, individuals working in less dense cities who had previous experience in denser areas will benefit the most from these gains. Finally, controlling for worker heterogeneity previous experience has a relevant and positive impact on wage growth only in cities with at least the same density level of the current place of work. Finally, city size has an important impact on the relative bargaining power of workers and firms in the labour market. When analysing the relationship of local wages and the business cycle, wage flexibility, measured by the wage curve, is higher in informal sectors in less dense areas. Therefore, large agglomerations are supposed to provide a higher bargaining power for workers, as they have further job opportunities. All these results indicate that agglomeration economies in Brazil are likely to stimulate spatial concentration and increase regional inequalities. Workers and firms self-select themselves into agglomerated urban areas, in which they find a more diversified environment and a larger share of high-skilled individuals. Bigger centres also provide the conditions for workers to bargain for higher wages, even if they are in the informal sector.Economias de aglomeração possuem um impacto importante sobre o mercado de trabalho. A interação entre trabalhadores e firmas em áreas de elevada densidade pode gerar ganhos de produtividade que resultam em salários mais elevados. Tais áreas também podem possuir custos de vida mais elevados, mas o crescimento recente das cidades parece indicar que os ganhos se sobrepõem aos custos. Portanto, grandes áreas urbanas têm um impacto esperado positivo sobre os salários. No entanto, não só o tamanho da cidade, mas também a composição setorial é relevante para entender as escolhas de localização das empresas de um sector específico. O escopo industrial de economias de aglomeração é investigado no primeiro capítulo desta tese, e os principais resultados indicam que não há um único mix setorial local ótimo para fomentar a produtividade em diferentes setores tecnológicos. Além disso, setores de alta tecnologia e setores industriais de baixa tecnologia se beneficiam mais da escala urbana no Brasil, seguidos de setores de serviços associados a intensidade de conhecimento mais elevado. As economias de aglomeração podem ter efeitos estáticos e dinâmicos. Eles são reforçados por um processo de seleção de trabalhadores qualificados para grandes áreas urbanas. As migrações inicial e de retorno constituem mecanismos essencial para a auto-seleção de trabalhadores mais qualificados e mais produtivos para grandes áreas urbanas. Assim, cidades com maior percentual de trabalhadores mais habilidosos deverão atrais mais indivíduos qualificados. A estimação de economias de aglomeração estáticas indica que a inclusão do efeito fixo individual reduz o coeficiente da densidade de maneira significante. Quando economias de aglomeração dinâmica são estimadas tendo por base a experiência prévia de trabalho em cidades, as vantagens estáticas se tornam não-significantes. Conforme esses anos de experiência são iterados com a densidade do local de trabalho atual, indivíduos trabalhando em cidades menos densas com experiência em cidades mais densas serão os maiores beneficiados. Por fim, a experiência prévia de trabalho tem um efeito positivo sobre o crescimento do salário somente no caso da experiência em cidades com ao menos a mesma densidade da cidade atual. Finalmente, o tamanho da cidade tem um impacto importante sobre o poder de barganha relativo dos trabalhadores e das empresas no mercado de trabalho. Ao analisar a relação dos salários locais e do ciclo de negócios, a flexibilidade salarial, medida pela curva de salário, é maior em setores informais em áreas menos densas. Portanto, as grandes aglomerações supostamente oferecem maior poder de barganha dos trabalhadores, pois eles têm mais oportunidades de emprego. Esses resultados indicam que as economias de aglomeração no Brasil parecem estimular a concentração espacial e ampliar as desigualdades regionais. Trabalhadores e firmas se auto-selecionam para grandes áreas urbanas, nas quais encontram um ambiente mais diversificado e outros trabalhadores altamente qualificados. Adicionalmente, grandes centros proporcionam maior poder de barganha aos trabalhadores em negociações salariais, mesmo que estejam no setor informa

Urban agglomeration, city size, and spatial density effects on wage flexibility:New evidence on the wage curve in Brazil

This study aims to shed new empirical light on the importance of the wage curve in a developing economy. The main contribution to the empirical literature is related to the analysis being conducted at different regional levels of a developing economy. This indicates that municipal-level data seems to be more adequate for wage curve evaluation, and that spatial dependency should be considered to adequately control for local labor market characteristics. Results for Brazil show that wage flexibility is higher in less dense local labor markets and in the informal sector. Controlling for unobserved local characteristics is necessary to obtain the ‘true’ elasticity of wages with respect to local unemployment rates, while spatial autocorrelation effects should be accounted for when the spatial unit of analysis is rather small to consider the interactions that happen inside a specific labor market area. Finally, a significant part of the difference in outcomes between formal and informal sectors appears to originate from spatial–economic dependence effects, indicating that labor market areas are more suitable for such analysis.</p

Towards a regional science academy: A manifesto

This Manifesto provides a joint proposal to create a Regional Science Academy as a think-tank support platform for a strategic development of the spatial sciences. The Regional Science Academy is a strategic spatial knowledge catalyst: it acts as a global intellectual powerhouse for new knowledge network initiatives and scholarly views on regions and cities as vital centrepieces of interconnected spatial systems. This contribution highlights its role and presents various activity plans