Sergio Firpo and Alysson Portella. Decline in Wage Inequality in Brazil: A Survey et al., 2017).

What explains this large and continuous wage inequality reduction in the 1990s and 2000s? The Brazilian economy experienced several changes in labor supply, labor demand, and institutional factors that likely contributed to this positive development. On the labor supply side, Brazil has been benefiting from a demographic bonus, with a decline in birth rates leading to a rise in the share of population of working age. Unemployment rates in Brazil decreased considerably in the 2000s, going from around 12% in 2002, to a historical low rate of around 5% in 2012.<sup>1</sup> Similarly, real average earnings increased by around 15% in the same period.<sup>2</sup> Average years of schooling of its working population increased fast, from 6.31 in 1995 to 7.41 in 2003 and 8.92 in 2012 (Ferreira et al., 2017), similar to overall trends in Latin America, where average years of education increased from 5.9 in 1990 to 7.13 in 2000 and 8.2 in 2010 (Barro and Lee, 2013). Analogously, the ratio of workers with completed tertiary education to complete primary and complete secondary school experienced an annualized rate of increase of respectively 1.4% and 0.1% between 1995 and 2013, with a faster rate between 2003 and 2012, of 1.9% and 0.6%, respectively. These rates were relatively low compared to most South American countries. As a benchmark for the latter period, these annualized rates of increase were 4.6% and 0.9% for Chile.

At the same time, changes in labor institutions and external conditions increased labor demand and wages, especially for the least qualified workers. Minimum wage had a real growth of more than 100% in the period, rising from 234 reais in 1994 to 555 reais in 2013.<sup>3</sup> The increase was faster in the 2000s, with a 62% rise between 2003 and 2012. Labor formalization increased fast in the 2000s, with the share of informal workers going from around half of the working population in 2002 to 38.3% by 2012. At the same time, the wage gap between formal and informal workers reduced by 12.6p.p., from 27.9% to 15.3%. The change in formalization was particularly high in the lower tail of the distribution, which potentially had a considerable impact on wage inequality, specially when coupled with the increase in real minimum wage in the period. Brazil also undertook a broad trade reform that dramatically reduced tariffs on imported goods in the early 1990s, with effective tariffs on imports decreasing from around 55% to 20%, while during the 2000s the commodity boom raised the terms of trade by around 35% between 2005 and 2011 in Brazil (de La Torre et al., 2015), whereas the real exchange

> 1Data from IPEA, available here, accessed in April 28, 2019.

> 2Data from IPEA/PME. Only for the metropolitan areas of Recife, Salvador, Belo Horizonte, Rio de Janeiro, S ̃ao Paulo and Porto Alegre.

> 3Using 2011 Brazilian reais. In nominal terms, these values are respectively 70 and 622 reais. Using 2011 PPP, they are respectively 240 and 377 dollars. To compute real values, we use price data from IPCA, provided by IPEA here. For data on PPP, we use data from the World Bank, provided here. Both were accessed on June 6, 2019.

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