Economist investigates the impact of institutions on wage inequality.

This thesis analyzes the role of unions, minimum wage, labor protections, and professional credentials in income distribution.

Economist investigates the impact of institutions on wage inequality.

This thesis analyzes the role of unions, minimum wage, labor protections, and professional credentials in income distribution.

Wage inequality has persisted for decades as one of the structural hallmarks of Brazilian society. It resists cycles of growth, technological changes, and variations in the qualification of the workforce. Although market factors influence the trajectory of incomes, a decisive part of this dynamic is rooted in the way the country organizes its rules, protections, and professional credentials. It is at the intersection between institutions and the market that the contours of wage distribution are defined.

Based on this diagnosis, the thesis "Wage Inequality and Labor Market Institutions in Brazil," by economist Erick Ohanesian Polli, supervised by Professor Carolina Troncoso Baltar at the Institute of Economics (IE) of Unicamp, examines the role of institutions between 2012 and 2024. The research combines historical reconstruction, sectoral analysis, and an econometric panel data model that seeks to identify the specific weight of unions, minimum wage, labor protection, and the occupational system in Brazilian wage inequality.

This study engages with two analytical traditions that have debated explanations for inequality for decades. One line of thought associates wage differences with individual attributes, such as education and productivity. The other argues that institutions shape the wage hierarchy by influencing hiring decisions, minimum wages, bargaining power, and professional requirements. Polli articulates these interpretations and shows that understanding inequality involves simultaneously observing market factors and institutional mechanisms. Based on this synthesis, the thesis reconstructs the evolution of labor institutions in Brazil, analyzes how sectors and occupations have reorganized in the last decade, and subsequently estimates the impact of these structures on income distribution.

To measure the role of institutions, Polli adapts methodologies common in international comparative research, applying them to a single country over time. The panel data model considers the evolution between 2012 and 2024 and simultaneously controls for educational composition, sectoral structure, labor demand, and differences in formalization. This choice allows distinguishing movements attributed to institutional changes from those explained by market transformations.

Institutional variables include minimum wage, unionization, labor protection, and the occupational system. Each element operates at a distinct point in the distributive structure. The minimum wage acts primarily at the base; unions tend to organize internal wage brackets; labor protection creates boundaries between employment relationships; and the occupational system structures credentials that concentrate benefits in specific occupational groups. This methodological design prepares the ground for analyzing how these forces manifest themselves in the mosaic of Brazilian sectors and occupations.

Contrasts in inequality

The descriptive stage reveals a labor market marked by profound asymmetries. Low-paying sectors, such as informal agriculture, exhibit some of the highest inequality rates, showing that low wages do not prevent significant internal dispersion. At the other extreme, information and education sectors combine higher average wages with equally high inequality.

Among formal workers, public administration concentrates the highest average salaries and also one of the greatest dispersions. Sectors such as commerce, accommodation, and agriculture register lower salaries and relatively less inequality—a relationship that changes when informality is considered. The thesis highlights that internal heterogeneity within occupational groups is central to explaining inequality. Even in similar activities, protected and unprotected employment relationships produce divergent salary trajectories.

According to Polli, the great heterogeneity of the informal sector is crucial to understanding these patterns. "The informal sector brings together occupations with very different working hours, stability, and remuneration, and this in itself widens the dispersion of income," he states.

Since there is no guaranteed minimum wage and exposure to uncertainty is greater, inequality tends to be high even in low-paying jobs. According to him, the expansion of app-based work and the flexibilization of hiring rules outside the CLT (Brazilian labor law) intensify this dispersion, creating even more heterogeneous trajectories within the informal sector. This combination helps explain why, even in sectors with low average income, internal inequality remains high and tends to grow over time.

Econometric results show that real increases in the minimum wage play a consistent role in reducing inequality, especially at the base of the distribution. The author observes that the effect varies between segments: “In the formal sector, the worker is guaranteed to receive at least the minimum; in the informal sector, it only serves as a reference,” he explains. The so-called “beacon” function exists, but with limited reach. Therefore, he states, the expansion of formalization is crucial, as it enhances the effect of the minimum wage and collective bargaining mechanisms.

On the other hand, not all institutions act in the same direction. Unionization appears in the study associated with greater inequality, which indicates that, in isolation, it may not fully capture the effects of collective bargaining. As these gains reach all workers in the category, part of the impact tends to be absorbed by the formalization itself, and not just by unionization per se.

Labor protection, measured by formalization and safety standards, separates career paths between protected and unprotected workers, widening internal boundaries in various sectors. The system of professions, in turn, tends to increase inequality between groups by organizing credentials that function as barriers to entry. However, when only regulated groups are observed, this structure is associated with less inequality within these specific occupations. Combined with other mechanisms, this design reinforces structural distances even when other institutions act in the opposite direction.

According to the researcher, the most promising path combines two fronts. "Strengthening formalization and increasing the minimum wage is what can most alter the trajectory of inequality," he states. He acknowledges that unions remain relevant, although with unequal capacity across categories, and warns that recent labor flexibility measures may reduce the reach of institutions that have historically mitigated inequality.

The findings reinforce the idea that institutions do not produce homogeneous effects. They interact with sectors, occupations, and employment relationships, generating combinations that can reduce or amplify disparities. In a scenario marked by occupational fragmentation and the expansion of flexible forms of employment, understanding how institutions shape incomes remains central to interpreting why some inequalities persist—and what paths can alter them.