1. Education Expansion and Decline in Tertiary Premium in Brazil: 1995-2013
Among all changes in wage structure in Brazil during the 1995-2013 period, the decline in return to workers with tertiary education is the most conspicuous. The decline in tertiary premium coincides with education expansion which shifted the relative supply and also implies the possibility of a decline in the average quality of the tertiary-educated workers of the more recent cohorts. The change in the quality composition of the tertiary group would also account for the decline in the relative tertiary premium. This paper tries to quantify how much of the change in the relative return to tertiary-educated workers in Brazil during the 1995-2013 period is due to the shifts in supply and demand, to examine whether there was any significant decline in the average quality of workers with tertiary education of the recent cohorts and how the changes in cohort quality had impacted the relative wage of the tertiary group. The results demonstrate that the growth in the relative supply had a significant negative impact on the tertiary premium. There is also evidence that the average quality of the tertiary group of the recent cohorts declined, which also accounts for a substantial proportion of the decline in the relative wage. This paper contributes to the literature as the first paper exploring the reasons behind the decline of tertiary premium in Brazil; besides, identifying whether there is any deterioration of the tertiary education provides very important policy perspectives for education reform and educational subsidies.
2. The Impact of Minimum Wage on Wage Distribution in Brazil
After the hyperinflation period, between 1995 and 2013, Brazil’s minimum wage increased by 150%, from 86 reals to 215 reals (1995 prices) per month. By plotting the kernel density estimation of the log monthly wage of full-time employees (both formal and informal), it is noted the minimum wage was always binding at the lower tail of the wage distribution during 1995-2013, which suggests the potential effectiveness of the minimum wage in changing the wage distribution. In addition, when looking at the lower tail and upper tail of the wage distribution separately, the lower tail inequality declined significantly over the 1995-2013 period, but the upper tail was relatively stable. This paper analyzes the impact of the minimum wage on employees’ wage distribution and simulates the counterfactual wage distribution in the absence of the increase in minimum wage between 1995 and 2013. The results demonstrate that a substantial portion of the decline in lower tail wage inequality, thus the convergence of the entire employee wage distribution between 1995 and 2013, was due to the minimum wage. The counterfactual analysis shows that without the substantial increase in the minimum wage between 1995 and 2013, the wages of workers with education levels lower than secondary school would not increase as much as we observed, and wages of workers with secondary and tertiary education would decline more than actually observed. The minimum wage was also effective in lowering the wage differential between gender, education and experience groups, but its impact on inequality within these groups was negligible.