Transitions to Formality and Declining Inequality: Argentina and Brazil in the 2000s

Abstract

Although inequality and labour informality are still distinctive characteristics of Argentina and Brazil, during the last decade the two countries have been successful in reversing the negative trends of the 1990s. This paper presents a comparative analysis of the labour formalization process that took place in Argentina and Brazil during the 2000s, through a study of the flows towards labour formality, the causes behind them and the interrelations of this process with the changes occurred in labour institutions and with the reduction in income inequality. The study contributes to two debates. The first one refers to the role of labour market flexibilization in employment formalization. The second one is related to the reduction of income inequality. Most of the literature places emphasis on the evolution of the returns to education. This study complements this approach by analysing the contribution of formalization to the reduction of inequality in these countries. The results show that labour formalization has reached all the categories of workers, has been concomitant with real minimum wage increases, and has had equalizing effects.