Structural transformation and labor productivity in Brazil

This paper examines the labor reallocation across agriculture, manufacturing, and services, and their impacts on aggregate labor productivity in Brazil from 1950 to 2010. We use a multisector model that features nonhomothetic preferences with constant elasticity of substitution and wedge distortions. This framework allows us to decompose the drivers of labor reallocation into supply-side, demandside, and wedges. For the 1950-2010 period, demand-side effects were responsible for most of the reallocation of labor away from agriculture towards manufacturing and services. On the other hand, if we focus only on the 1980-2010 subperiod, supply-side drivers become the major determinant for labor reallocation.