Brazilian income distribution in the 1960s: Tacts’ model results and the controversy

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Abstract
This paper discusses a number of hypotheses that have been put forward to explain apparently unequalising changes in Brazilian income distribution in the 1960s. One of these argues that, if more relevant measures are used, the increase in distributional inequity is apparent only. This hypothesis is rejected after conceptual and statistical criticism. Of the hypotheses which accept increased inequity in distribution in the 1960s, one emphasises the importance of changes in the composition of the income‐earning population (by education, sex, sector, age and region). But it is shown here that these compositional effects were either in an equalising direction (regional; sectoral) or quantitively small (sex, age and education). The argument that the rise in distributional inequity was caused by growth‐induced demand for skills forcing up the rewards for skill, is also rejected. The increase in the supply of skilled labour in the 1960s was very large, and with plausible elasticities of substitution and a competitive labour market, the rewards for skills must have fallen. Detailed analysis of Brazilian wage‐fixing institutions suggests that the government was able, despite some wage drift, to hold back increases in real wages by squeezing minimum money wages and allowing firms to pass on increased labour costs in output prices. This is consistent with a shift in the functional distribution in favour of profits. It is also consistent with a picture of the labour market as one of two non‐competing groups, managers who are paid wage‐spreading increases—their share in the income left over after the labourers are paid their wages. Mutual consistency of partial explanations does not, of course, guarantee their correctness.

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