Comparative analysis of labour market inequality in Brazil and India: Concepts and methods of analysis By Alexandre de Freitas Barbosa, Maria Cristina Cacciamali, Ashok Pankaj, Gerry Rodgers and Vidhya Soundararajan Project Paper B September 1, 2013 Working Paper Series No. 4/2014 IDRC Project number 106919-002 (Institute for Human Development, New Delhi, India) IDRC Project number 106919-001 (Cebrap, Sao Paulo, Brazil) IDRC Project title: Labour Market Inequality in Brazil and India Institute for Human Development, NIDM Building, IIPA Campus, IP Estate, New Delhi 110002 Centro Brasileiro Análise Planejamento Cebrap, R. Morgado de Mateus, 615, São Paulo - SP, 04015-051, Brazil Contact: [email protected]; [email protected] This report is presented as received from project recipent(s). It has not been subjected to peer review or other review processes. This work is used with the permission of Institute for Human Development/Cebrap, New Delhi/Sao Paulo. Copyright 2014, Institute for Human Development/Cebrap. Abstract In many parts of the world there has been a growth in economic inequality in recent years. High levels of inequality not only undermine efforts to reduce poverty and promote a general increase in living standards; they also raise questions of social justice, of social solidarity, of the role of public policy and of the acceptability of economic systems. Brazil and India have different histories with respect to economic inequality. The difference in trends in inequality between these two countries is of considerable interest for both research and policy. Among the reasons, patterns of work and employment play an important role – differential access to jobs, inclusive or exclusionary labour market institutions, differences in wages and wage shares, patterns of organization and industrial relations. But the relationships are complex and are embedded in the histories and social structures of each country. This paper explores the historical patterns in the two countries and their consequences for inequality over time, and the characteristics and determinants of inequality between different groups of the population in more recent periods. The paper examines specific dimensions of inequality, in terms of gender, caste, education, region, occupation and other factors relevant in the labour market and analyses studies the economic and social relationships that are responsible for these cleavages. 1 Keywords: economic transformation, economic and social institutions, inequality, state policies, formal and informal institutions, historical framework 2 CEBRAP-IHD research project on labour market inequality in Brazil and India Project paper B Comparative analysis of labour market inequality in Brazil and India: Concepts and methods of analysis Version 1.0. September 1, 2013. Not for circulation In many parts of the world there has been a growth in economic inequality in recent years. High levels of inequality not only undermine efforts to reduce poverty and promote a general increase in living standards; they also raise questions of social justice, of social solidarity, of the role of public policy and of the acceptability of economic systems. This CEBRAP-IHD project on labour market inequality is investigating these issues in India and Brazil in a comparative framework. Brazil and India have different histories with respect to economic inequality. Brazil has long been one of the most unequal countries in the world, and remains so today, despite some success in reducing inequality in recent years. Inequality in India, although deeply rooted, was lower than Brazil’s in the past, but has been rising rapidly. This difference in trends in inequality between these two countries is of considerable interest for both research and policy. Among the reasons, patterns of work and employment play an important role – differential access to jobs, inclusive or exclusionary labour market institutions, differences in wages and wage shares, patterns of organization and industrial relations. But the relationships are complex and are embedded in the histories and social structures of each country. The project will explore both the historical patterns in the two countries and their consequences for inequality over time, and the characteristics and determinants of inequality between different groups of the population in more recent periods. The present paper considers the conceptual and methodological issues that need to be addressed in this project, and suggests research methods that can be applied. • The first section considers concepts of inequality, with particular reference to its labour market dimensions. It looks at how inequality has been conceived and analysed in the past, and the main perspectives that are in common use today. And it considers some of the principal forms of inequality found in the labour market • The second section puts the analysis of inequality in historical context. Its main aim is to set the theoretical frame for the analysis of inequality in the process of economic transformation, by examining the relevance of existing literatures on development and change • The third section examines the main specific dimensions of inequality, in terms of gender, caste, education, region, occupation and other factors relevant in the labour market. It looks into the economic and social relationships that are responsible for these cleavages • The fourth section considers the effects of a range of social institutions and state policies on inequality. Both formal and informal institutions are considered, and both policies that aim to directly change labour market outcomes, and the indirect effects of wider economic and social interventions 3 • The fifth section explores the statistical and quantitative tools that are available for the analysis of inequality, principally in cross-section. It considers alternative decomposition methods as well as the construction of causal regression models. • The sixth and final section considers the role of dialogue with key social actors as part of the research design. This paper is jointly authored by Alexandre de Freitas Barbosa, Professor, University of São Paulo (USP) and Senior Researcher at CEBRAP, São Paulo; Maria Cristina Cacciamali, Professor, USP and Senior Researcher at CEBRAP; Ashok Pankaj, Senior Fellow, Institute for Human Development (IHD), New Delhi; Gerry Rodgers, Visiting Professor, IHD; and Vidhya Soundararajan, Visiting Research Associate, IHD, and includes contributions by Fabio Tatei, Rogerio Barbosa and Ian Prates, Research Assistants at CEBRAP, by Taniya Chakrabarty, Research Associate, IHD, and by J. Krishnamurty, Visiting Professor, IHD. The principal author of section I is Gerry Rodgers; of section II, Alexandre Barbosa; of section III, Maria Cristina Cacciamali; of section IV, Ashok Pankaj; of section V, Vidhya Soundararajan. 4 I. Conceptualizing inequality and its labour market dimensions 1. Why inequality? Amartya Sen starts his book on “Inequality re-examined” (Sen, 1992) with two interdependent questions: Why inequality? And inequality of what? We have to answer the same questions in the project on labour market inequality in Brazil and India. Why is inequality a concern? There are many possible answers, of course. The principle of equality is embedded in much political discourse, and many would regard it as an ethical imperative. There are also much more pragmatic approaches, so that some would consider equality as a sort of welfare optimum, for if the value at the margin of whatever metric we are interested in, a measure of satisfaction or utility for instance, declines as you have more of it, then the sum total of welfare is maximized when all have the same. But even without a belief in the desirability of perfect equality, inequality may be a concern if it reaches unacceptable levels. Societies may readily accept that some have more than others, and find all sorts of legitimate reasons why this may be justified, but refuse to accept that some can have enormously more than others. So there is outrage today when we discover that the chief executives of large companies are paid hundreds of times more than the workers in the enterprises that they manage; but if they are paid 10 or 20 times, the opposition is much more muted. These are subjective perspectives, which sometimes seem arbitrary. Some societies are much more at ease with high levels of inequality, which they justify in terms of effort or personal worth, than others – the United States versus Sweden for instance. In the end the notion of fairness, or perhaps of social justice, may be more compelling as a general principle than the notion of equality. But as the preceding paragraph makes clear, in posing the question, “why inequality?”, we are already embarking on the question, “inequality of what?”. Because there are many different spaces within which equality can be defined or sought. And the extent to which inequality is a concern depends to a large extent on what it is that is unequally distributed. There is a tendency for the discourse on inequality to be dominated by notions of living standards, in the sense of incomes or consumption levels. But of course equality can also refer to health or education, to public services, to employment opportunities, to democratic participation, to citizenship, to rights and freedoms and to many other domains. What is more, equality in one dimension may be incompatible with equality in another. Thus the liberty of enterprise, if it is shared by all, may well be