Two essays on regional heterogeneity in the wage–unemployment relationship in Brazil

Abstract

This thesis investigates the relationship between wage growth and the unemployment rate from a regional perspective for the Brazilian economy through an empirical approach that explicitly incorporates regional heterogeneity and changes in the conduct of macroeconomic policy. Recent literature has emphasized the gains from considering regional variation in the identification of the Phillips Curve, motivating the strategy adopted in this study. In the first essay, the relationship between the unemployment rate gap and wage inflation is analyzed for Brazil and its states using Bayesian Vector Autoregressive (BVAR) models, showing that this relationship is not homogeneous, but rather characterized by significant regional heterogeneity in both the aggregate labor market and its formal and informal segments. In the second essay, using panel data and spatial panel techniques, the study examines how changes in the conduct of macroeconomic policy, especially the transition from a dovish to a hawkish stance beginning in 2016, affect the relationship between unemployment and wage inflation. The findings indicate that the wage Phillips Curve in Brazil becomes more evident during this period, while also highlighting the role of wage inflation expectations and spatial effects across regions. Taken together, the results of this thesis show that the Phillips Curve in Brazil is sensitive to regional heterogeneity and to the macroeconomic policy regime, thereby providing new evidence for understanding inflation dynamics in the country.