Labor Market, Distributive Gains and Cumulative Causation: Insights from the Brazilian Economy

This paper investigates the impact of economic growth patterns on employment structure, highlighting the effects of the main final demand components' variations. Brazil is an interesting case study, as it has experienced a combination of sustained economic growth, an improvement in income distribution, and a notable increase in job formalization in the 2004-2013 period. We explore how the Brazilian growth pattern contributed to the employment growth and changes in the occupational structure (informal and formal jobs, and wage-level) and provide original insights into the Brazilian labor market in the long 2000s. We find no signs of typical job polarization, as changes in job structure relate to reductions in wage inequality. We develop a structural decomposition analysis to measure the demand components' role in explaining the Brazilian labor market's transformations based on an effective demand input-output model. Drawing on an analysis of cumulative causation between income distribution, household consumption, and occupational structure, we find that induced consumption significantly impacted service and trade industries, increasing the low-wage jobs growth rate. Our analysis suggests that the combination of cumulative causation with government consumption and investment growth is crucial to explain distributive gains and the absence of job polarization in the Brazilian labor market.