Sergio Firpo and Alysson Portella. Decline in Wage Inequality in Brazil: A Survey skilled workers in this groups being around 20-30% larger than for the unskilled.

However, there is evidence of differential impacts across regions based on their initial basket of industries. Costa et al. (2016) uses these differences to investigate the impact of the surge in China’s import penetration and expanded demand for some Brazilian products. Using data from the Brazilian Census representative of the whole economy, they show that local labor markets<sup>12</sup> at the 80th percentile of exposure to increased demand experienced a 0.93 p.p. higher increase in average wages than regions in the 20th percentile. Similarly, labor markets in the 80th percentile of exposure to imports from China experienced a 0.82 p.p. drop in average wages of manufacturing workers. Labor markets more exposed to export shocks also increased the share of formal jobs. Therefore, if there were different impacts of the boom according to industry composition, we expect that differences in the intensive use of skilled vs. unskilled labor across these industries may result in changes in skill premium and wage inequality. In fact, as documented by Benguria et al. (2018), the industries in the commodity sector of the Brazilian economy are more unskilled-intensive<sup>13</sup> than in the tradable manufacturing sector, followed by the industries in the non-tradable sector. Moreover, the distribution of skill intensity of industries in the commodity and tradable sectors is more homogeneous than in the nontradable sector.

Ad ̃ao (2015) and Benguria et al. (2018) use differences in industry composition across local labor markets to assess the impact of the commodity boom on skill premium and wage inequality in Brazil. The first develops a Roy model in which heterogeneous workers self-select into a commodity and a non-commodity sector based on their productivity in each of these sectors. An increase in commodity prices increases the wages of both skilled and unskilled workers, benefiting more the latter due to the high intensity of unskilled labor in the commodity sector. As a result, workers reallocate across sectors, and regions specialized in producing commodities observe a convergence in wages with more industrialized regions. Using data from the Brazilian Census, Ad ̃ao (2015) estimates that this process can account for 5-10 percent of the reduction in the variance of log wages between 1991 and 2010. Benguria et al. (2018), using matched data of workers in the formal sector and firms, consider a similar cost mechanism by which the increase in commodity prices rises the relative price of unskilled workers, thus reallocating workers across industries. However, they also consider a second mechanism, a wealth channel. With the increase in commodity prices there is a surge in demand in the whole economy, benefiting firms that serve the domestic market. Hence, there should be a reallocation of

> 12These labor markets are defined based on microregions, which are groups of municipalities developed by IBGE based on the integration of their local economies.

> 13The commodity sector includes agriculture, mining and fuels. Skilled labor is defined as collegeeducated labor force.

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