The contribution of the firm and worker effects for the location effects on wages and for the formal worker’s wage variation from Brazil

Abstract

The objective of this paper is to assess the contribution of unobserved heterogeneity of firm and individual to the effects of location on wages and the wage variation of the formal worker in Brazil. This paper estimates a wage equation with observables characteristics of workers, unobserved heterogeneity of worker and firm and the effects of location, using the Rais-Migra microdata (1995-2008). The wage decomposition model of Abowd, Kramarz and Margolis (1999) is used to deal with multiple fixed effects in a large database which is composed of worker and firm combinations. The findings show that the firm and worker effects account for a substantial variation of the real wages and effects of location on wages of formal workers from Brazil.