Principal investigator: Eduarda Miller de Figueiredo
Article title: Public sector employment and income inequality in Brazil
Article authors: Francine Martinez Braite and Vladimir K. Teles
Location of the intervention: Brazil
Sample size: 27 states (1986-2011)
Sector: Economic Policy & Governance
Type of intervention: Wages and income inequality
Primary variable of interest: Gini index
Evaluation method: Others
Policy Problem
Inequality in Brazil has been decreasing since the 1990s, with an acceleration in this reduction from the 2000s onwards; however, it remains one of the countries in the world with the greatest income inequality. This reduction is a consequence of changes made to the structure of society through an increase in the proportion of adults achieving income equality. per capita within the same group, government transfer programs, education levels, reduction of discrimination based on race and gender, among others (Barros et al., 2006).
Differences in income between the private and public sectors can lead to differences in inequality indicators, since public sector salaries are higher compared to private sector salaries. Furthermore, the public sector is significantly large, and salary regulations do not follow market standards.
When analyzing the case of inequality in Brazil, Hoffmann (2006) introduced several variables important to the country's context, some of which are government transfers and the amount paid in pensions and retirement benefits. In his findings, he observed that government transfers play a significant role in reducing inequality, unlike the amount paid in pensions and retirement benefits, which tend to increase inequality.
Assessment Context
To analyze income inequality in Brazil, it is necessary to study the history of the Brazilian economy. In the 1970s, the Brazilian economy experienced intense economic growth, which was affected by the oil crisis that plagued the entire world at the end of the decade. Between 1980 and 1990, the country faced political instability stemming from the end of the dictatorship and hyperinflation. Subsequently, the Real Plan in 1994 provided stabilization, granting a period of more sustainable growth that lasted until the first decade of the 2000s.
Figure 1: Evolution of income distribution in Brazil
Based on the graph presented in Figure 1, it was observed that the Gini index[1] The income participation rates of the top 1% and top 10% fell in the 80s, but increased again in the final years of the decade, remaining at high levels until the early 90s. The situation changed after the Real Plan, when inequality indices began to decrease; however, even with this reduction, income inequality in Brazil remains high compared to the rest of the world.
In the late 1970s and early 1980s, the disparity in income concentration between the richest 1% and the poorest 50% became evident. The share appropriated by the richest during this period was greater than or equal to that appropriated by the poorest for practically all of Brazil, with the greatest difference occurring in 1977 in the Central-West region. Similar to inequality indicators, from the mid-1990s onwards, the situation showed improvement, with the South region reaching the lowest level of appropriation by the richest 1% in 2014.
According to a study conducted by the IMF (2015), between 1990 and 2012, there was an increase in income inequality in developed countries, with an increase in income at the top of the distribution, unlike what occurred in Brazil. In emerging economies, the study found a greater absorption of income by the lowest-income segment of the population.
Policy Details
To analyze which factors contributed to the decline in income inequality between 1991 and 2011, the authors used control variables such as education, unemployment rates, state size, the proportion of poor people in the economy, and government social programs. These variables were added to the model because they impact income inequality.
A model with dynamic dashboard data was used, called System-GMM, which includes the lagged dependent variable (Gini index) as an explanatory factor in the model. For this, five time periods were used for the 27 Brazilian states: 1986-1991, 1991-1996, 1996-2001, 2001-2006 and 2006-2011.
Although there is a body of research on income inequality in Brazil, few studies focus on the differences in income earned between the public and private sectors and the consequences of this difference on inequality indicators. Therefore, this article aims to understand this possible relationship through a new dependent variable: the Gini index for the public sector. The main motivation for studying this distinction between sectors stems from the fact that public sector salaries are higher than those in the private sector, with a 35% increase for public sector employees between 1992 and 2005, compared to only 4% in the private sector.
Results
The results found by the authors demonstrate that economic growth has a negative impact on the Gini index for the period analyzed. However, they found that the variable indicating the average years of schooling of individuals over 25 years of age played an important role in reducing income inequality in Brazil. This was achieved through the variable containing the measure of the proportion of government transfers.[2] Regarding the state's GDP, the importance of government social policies in reducing inequality during the period was verified.
When comparing the percentage of the population living below the poverty line with economic growth, the authors observed that, although economic growth generates effects in reducing inequality, the higher the proportion of poor people in the economy, the smaller the impact of economic growth on reducing income inequality. Furthermore, when the proportion of poor people reached 55%, the impact of growth became negligible.
When the Gini index for the public sector was used as the dependent variable, the results differed, demonstrating that government transfers possibly benefited a portion of the population not included in the public sector workforce and, therefore, are not relevant to reducing inequality in that sector. However, the Gini index for the private sector showed that accelerated economic growth impacts job offers, increasing wages and reducing inequality.
When measuring whether the impacts are permanent or temporary, it was assumed that the Gini index would stabilize in the long term and assume a constant value. The education variable showed results demonstrating that it has permanent effects on reducing the Gini indicator, suggesting the importance of education as a factor responsible for reducing income inequality in Brazil in the long term. Regarding government social programs, the results show that the programs were important for reducing inequality during the study period, but have a limited reach in the long term.
Lessons in Public Policy
The study demonstrates that, in the Brazilian case, economic growth and education were fundamental to income inequality in the short term, referring to the period studied, as well as in the long term. Furthermore, it notes the importance of the proportion of the population below the poverty line, since the higher the proportion, the less effective economic growth will be and the consequent reduction in income inequality.
Reference
BRAITE, Francine Martinez et al. Public sector employment and income inequality in Brazil. 2018.
[1] The Gini Index is a tool for measuring the degree of income concentration within a given group, indicating the difference between the incomes of the poorest and the richest.
[2] Continuous Benefit Payment and Social Assistance, Lifetime Monthly Income and Bolsa Família (Family Allowance).
