Formal Schooling Expansion as Formalization Engine
Expert TheoryReview
High labor informality in Brazil persisted during the 2000s despite significant real minimum wage increases, creating a puzzle regarding what macroeconomic force drove the concurrent formalization drop.
Picture this
Think of getting a formal job like applying for a position that requires reading technical assembly manuals. If workers lack basic literacy and numeracy, employers will hire them informally for off-the-books manual labor. Upgrading worker education equips workers with the skills needed to qualify for structured formal employment.
What the evidence says
Increased average schooling levels served as the primary mechanism explaining the 12 percentage point drop in Brazilian labor informality from 2003 to 2012, counteracting the informalization pressure from rising minimum wages.
- Who was studied
- Brazilian national labor force tracking from 2003 to 2012 across PNAD household survey data.
- How
- Calibrated theoretical labor market model using empirical macroeconomic data (Haanwinckel and Soares, 2017).
What to do
Expand public secondary and vocational education infrastructure to raise baseline worker qualifications for formal sector employment.
From the source
"Using a theoretical model calibrated with real data, they argue that the increase in schooling was the primary mechanism for increasing formalization in this period."
JOI_Brazil_Evidence_in_Labor_Market_Policies_and_Implications_for.pdf