The short-run effects of the recessionary measures were coupled with change in the trade regime, as the economy became open, leading to a major microeconomic restructuring effort that resulted in a 20 to 25 percent reduction in industrial employment between 1989 and 1992. The work of R. Barros and R. Mendonga replicates the methodology of Blanchflower and Oswald to estimate wage curves for the urban labor market in Brazil.3 The slope of this wage curve varies over time. There are other ways to examine the degree of wage flexibility. Figure 7-1 presents the behavior of real wages in the urban formal and informal 3. Therefore their results refer to the whole labor force, not only to workers in the formal sector.
Wages are twelve-month moving averages.
Coming out of the 1981-83 recession, industrial sector wages increased by around 35 percent, formal sector wages by 25 percent, and informal sector wages by 45 percent. In the 1990-92 recession, wages in industry fell by around 15 percent and then recovered, while in the formal and informal sectors wages fell by around 25 percent and 30 percent, respectively. These figures show that wages are very flexible. When these three sectors are compared, it is notable that wages in the industrial sector exhibited the least flexibility during the recent recession. Wages in the informal sector are more flexible than in the formal sector, but only very mildly so.