June 29, 2016

Surge in unemployment brings about increased inequality in Brazil

Following years of steady decline, the income gap between the rich and poor in Brazil has risen vastly during the first three months of the year, largely due to the rising unemployment and thus income distribution.

Using data from the Brazilian Institute of Geography and Statistics, Rodolfo Hoffman of the University of São Paulo studied the impact of job shortages. Hoffman found that in 2015, inequality between both employed and unemployed citizens who make the work force had risen by almost 3%, while unemployment rose from 7.9% to 10.9%.

This is particularly significant as these indicators, taken from Pnad (Brazilian National Household Sample Survey), in normal circumstances change very little over time. The survey depicts income patterns within the labor market, without counting other sources of income such as pension or unemployment insurance.

According to Hoffman’s study, despite the possibility of income assistance or other government benefits, an individual’s income will become zero automatically after they lose their employment income.  Experts often use employment income as a marker to avoid a complete lack of knowledge, due to the fact that the most accurate method of calculating inequality is income divided by the number of individuals in each household, however this data is only distributed by the IBGE once a year, in September.

In his IZA World of Labor article, Trade, foreign, investment, and wage inequality in developing countries, Alessandro Cigno examines some of the other factors that contribute to inequality, specifically wage inequality, as he notes: “Large wage inequality is undesirable not only on equity grounds, but also because, where credit markets are underdeveloped, it limits the ability of uneducated parents to finance their children’s education.”

Related articles:
Trade, foreign, investment, and wage inequality in developing countries by Alessandro Cigno
Do skills matter for wage equality?  by Stijn Broecke
Income inequality and social origins by Lorenzo Cappellari