The equalizing spiral in early 21st century Brazil: a Kaleckian model with sectoral heterogeneity

Abstract

The relative success of the Brazilian and other South American economies in combining higher growth rates with a reduction of income inequality in the 2000s can be better understood through the study of the relationship between wage distribution, consumption patterns and the composition of employment. By starting from the Neo-Kaleckian framework, this paper builds a two-sector open economy model with two types of workers, where changes in wage inequality can affect the output composition of the economy towards an increase in the non-tradable sector. Taking into account an endogenous response of the wage-share in the non-tradable sector to changes in the composition of employment, a reduction in wage inequality seems to have a stronger positive effect on non-tradable output, what may also exacerbate a possible side effect of this process: the deterioration of the trade balance.