Firm Productivity and Wage Growth: Evidence from Brazilian Manufacturing Data

Recent work suggests that market frictions can explain observed differences in firm productivity distributions between countries, with developing economies featuring a relatively larger proportion of small, unproductive, stagnant, and low-pay firms. Following the removal of such barriers to growth, firms are frequently observed to grow fast and increase productivity – but less is known about the extent to which such growth episodes are accompanied by changes to the wage structure. As Brazil recently underwent economic reform followed by a high-growth episode, this study will use detailed Brazilian data to estimate changes to worker compensation of firms that experience high growth from 1996-2012.

The team examines which firm-level characteristics translate into higher wages for the firm’s employees. They hypothesize that persistent productivity innovations are an important driver of wage growth at a firm, and test this hypothesis by employing a rich matched employer-employee database that follows firms and workers in the manufacturing sector for 1996-2012.

This hypothesis implies that private enterprise growth is closely related to inequality, which has direct policy implications for low-income countries as tackling inequality is among the highest of priorities cited by policy-makers. This investigation could potentially lend support to the view that economic growth and equitable distribution are common goals that can be achieved by removing obstacles to private sector development. 


Jorge Alvarez

Princeton University

Christian Moser

Columbia Business School

Niklas Engbom

New York University