Essays on the Workforce of the Developing World

Abstract

My dissertation focuses on the outcomes and consequences of public policy in a developing country, specifically, that of Brazil. In many ways, Brazil represents a microcosm of the emerging world – the nation has a large, fast-growing economy, geographic diversity, and a diverse population, both racially and socio-economically. I maintain that much can be learned about growing and developing economies from studying Brazil. Each chapter of my dissertation analyzes an important aspect of labor markets in Brazil. The first chapter entitled “Pensions, Retirement, and the Disutility of Labor: Bunching in Brazil,” focuses on how Brazilian elderly workers react to pension eligibility as part of a long-running and generous pension program that guarantees a high fraction of worker wages to be paid out upon claiming. Interestingly, while a worker is not required to retire to receive the pension, about 45% of urban workers do anyway. I explore the potential reasons for this phenomenon from an economic modeling standpoint and find that not only does the inability to borrow matter, but the excessive generosity of the pension does also. My results have implications for the formation of retirement incentives in the developing world and offer insight into how aspects of such policies may create predictable variation in employment patterns. The second chapter focuses on the effects of government spending in Brazil – namely, what happens to employment when local governments come into control of a larger amount of resources (in our case, federal transfers). Using a means of identification that relies on the assignment of federal funds to municipalities dependent on arbitrary population thresholds as criteria, we find that employment does increase by a larger factor than has been documented in developed countries such as the United States. We explore potential explanations for this finding, noting that the effect is concentrated among low-skilled and private sector workers. This chapter is co-authored with Breno Braga and Diógo Guillen. The third and final chapter of my dissertation, “Extending the Social Safety Net: Female Labor Supply and Pension Eligibility,” examines another arm of the social security system that grants old-age pensions to rural workers. Because of a policy change in the early 1990s, large numbers of rural female workers were suddenly made eligible for a sizable pension conditional on working requirements, whereas they had not been eligible at all before. I find that female workers respond by increasing their labor supply to qualify for the pension, and importantly, I also find that younger rural females who will be eligible in coming decades also increase their labor supply compared to their urban counterparts. My results from this study help in understanding the flexibility of the labor supply decisions of older workers and shed light on the responsiveness of younger generations to future incentives. The issues I tackle in the Brazilian context are increasingly growing concerns among policy makers: specifically, that of how to stimulate an economy and how to plan social assistance programs in the context of an aging workforce. As other developing countries, not only in Latin America but elsewhere, plan public policy agendas, I hope that my research can be informative.