The market for unskilled labor is influenced by all the same factors of supply and demand that we have analyzed for skilled labor in Chapter 9. However, two factors deserve special attention in this market: agriculture and minimum-wage policy. Agriculture is the basic employer of unskilled labor. If it grows rapidly, unskilled labor is retained in the countryside and need not flood the urban labor market. A prosperous and expanding agricultural sector provides cheap food to the cities and jobs for the unskilled. This is progressive because it hastens the moment when the economy reaches the turning point at which the elimination of surplus labor begins to narrow the unskilled wage differential.

In Brazil, the government has a direct impact on wages for the unskilled through its control of the minimum wage. Since 1964, the government has systematically held down the minimum wage in real terms, particularly during the stabilization period, 1965–68. This intervention by the government, perhaps more than any other, has been a source of controversy. For when the income distribution became significantly less equal over the same period, critics of the government were not long in singling out wage policy as the chief cause.

The chapter begins with a discussion of the trends in output, employment, and productivity in agriculture. It then goes on to a discussion of government wage policy. After a short description of that policy, we present a theory of the rural–urban wage rates for unskilled labor.