Wage determination in Brazil: The growth of union bargaining power and informal employment

Abstract

This article examines wage determination in Brazilian manufacturing during the 1980s and early 1990s. It presents evidence to show that the reduction in state regulation of collective bargaining has led to the development of a system of wage determination which is increasingly characterised by rent sharing and insider trade union bargaining power. Real wages appear increasingly inflexible with respect to movements in open unemployment, with a large informal sector disciplining formal sector wage bargaining and cushioning the impact of broader labour market conditions. An important consequence of this is that the employment costs of a successful counter‐inflationary strategy may be very severe.