Impact of demand on labor absorption and the distribution of earnings, the case of Brazil

To do so, we relied on a linear input-output model augmented by an investment requirements matrix. The focus has been on the impact of demand, and output performance is tied to derived labor demands by use of the "job competition" model. The heterogenity of labor is explicitly recognized by disaggregating labor input in each sector into eight skill levels. The distribution of earnings is determined both by the distribution of employed workers between these skill classes and by the unemployment rate. The procedure was first to test the plausibility of the model by comparing its simulated predictions with Brazilian historical experience, 1949-62. Since the model seemed to perform very well, we then explored four counterfactual experiments, comparing the results with the "historic" simulation. The counterfactuals represent alternative policy regimes not only available to the Brazilian government during the "50"s, but, in the case of two, actually pursued by Brazil in the "60"s. By comparing the behavior of labor absorption rates and earnings distribution under these alternative policy regimes, we have been able to isolate the sources of Brazilian economic performance in these crucial social dimensions.