Informality and segmentation in the Brazilian labor market: quantilic evidences under endogenous allocation

Abstract: This study investigates the occurrence of incomes segmentation between formal and informal workers in Brazil, considering two distinct groups: employees, and self-employed together with employers. While for the first group the formality criterion is the signed work contract, for the second is the contribution to the social security. Using information from the National Household Sample Survey (PNAD) for the years of 2002 and 2012, and applying a model of quantile treatment effect under endogeneity, we try to verify if there are differences of income between formal and informal workers that can be explained solely by the individual allocation into one sector or another. The results indicate the occurrence of segmentation in a large part of the income distribution for both groups and in both periods. In addition, this phenomenon occurs more intensely in the lower quantiles of the distribution, that is, among lower income workers.