The Informal Sector of the Brazilian Economy

The informal sector plays a significant role in the Brazilian economy, encompassing workers and small entrepreneurs operating without formal registration. This study analyses the determinants of informality in Brazil’s federative units from 2016 to 2022, focusing on structural factors such as unemployment, GDP per capita, education, and gender and racial inequalities, while also considering potential pandemic-related effects. Using Granger Causality Tests, the research identifies bidirectional relationships between unemployment and informality, as well as unidirectional effects from GDP per capita to informality. The findings reveal that informality is more prevalent in less developed regions and among vulnerable groups, including non-white populations, women, and individuals with low education levels. Despite cyclical variations, the long-term trend of increasing informality persists, driven by economic instability and structural labour market weaknesses. The study highlights the need for public policies focused on education and formal job creation to mitigate informality’s adverse effects on productivity and social protection.