Cost of living and wages in the Brazilian metropolitans regions

This paper analyses the relationship between household cost of living and wages in the Brazilian metropolitan regions. The country's economic growth in the last decade contributed significantly to structural economic changes at the regional level, in terms of employment, population growth and income at PPP levels. With low inflation and modest economic growth, families have been able to adjust their domestic budget on the long run, improving their welfare. In urban areas, poverty reduction has been significant and has increased the consumption of families, with changes in the basket of goods and services, as well in relative prices. Based on recent estimations of cost of living in the Brazilian metropolitan regions (Almeida and Azzoni, 2013), we tested if the elasticity between wages and living cost is unitary. In other words, if workers who live in the most expensive regions receive a full compensation through wages for living costs differences. We used micro data from the Household Expenditure Surveys in the period 1996-2009. Our preliminary results suggest that the price index elasticity in response to wage levels is above the unity. This result is in accordance to the literature, but we found higher elasticities. The elasticity for housing expenditures is higher than for food and transportation, indicating that housing costs are more important in defining welfare levels.