Gilberto Joaquim Fraga

The objective of this paper is to extend the theoretical model of the theory of unemployment of Marston (1985) and to apply for the Brazilian States, with special prominence in the evaluation of the role exerted for the education (human capital) of the unemployed in the unemployment rate. In accordance with the theory, the fixed effect as attractiveness, wages, and market structure of the States exerts important influences on the unemployment rate. However, the model omits the main characteristic of the unemployed ones that is the average education. Thus, in this paper we correct this problem of omitted variable. Another innovation is related to the aspect of the econometrical estimates. Besides specification tests, fixed and random effects estimates, does estimate dynamic equations that account for the omitted variable problem and also eliminates potential endogenous (reverse causality) problems. As main result, the level of education of the unemployed have a causal relation on the unemployment rate of a non linear form, inverted U. The unemployment rate is increased for average knowledge below four years and declines after that. With regard to the market structure of the economy, the agriculture sector demonstrated to be the only one that help reduces the unemployment tax. The reason is that this sector generates employment of low qualification compatible with the low education level of the unemployed work force.