Enforcement of Labor Regulation and Informality

By Rita Almeida, Pedro Carneiro. Social Science Research Network, 2011

256 citations recorded by the source corpus.

Enforcement of labor regulations in the formal sector may drive workers to informality because they increase the costs of formal labor. But better compliance with mandated benefits makes it attractive to be a formal employee. The authors show that, in locations with frequent inspections, workers pay for mandated benefits by receiving lower wages. Wage rigidity prevents downward adjustment at the bottom of the wage distribution. As a result, lower paid formal sector jobs become attractive to some informal workers, inducing them to want to move to the formal sector.

Subfields: Economics and Econometrics, Public Administration

View Paper: https://www.semanticscholar.org/paper/d0649d6532cdebdc12d5c5c3681dce23a24cc11e

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Citations in the corpus

A Helping Hand or the Long Arm of the Law? Experimental Evidence on What Governments Can Do to Formalize Firms (2013, unknown): “Several more recent non-experimental studies in developing countries have found evidence that the degree of enforcement matters for labor informality (Ronconi, 2007; Almeida and Carneiro, 2012), but there is no reliable evidence we are aware of on the impacts of enforcement on firm informality.”
Firms, Informality, and Development: Theory and Evidence from Brazil (2018, background): “(1997), Amaral and Quintin (2006), de Paula and Scheinkman (2010, 2011), and Galiani and Weinschelbaum (2012), among others.”
Minimum wage coverage and compliance in developing countries (2013, background): “30 Evidence to that effect for Brazil is presented by Almeida and Carneiro (2011). 31 This system provides the labour inspectorate with better data on workplaces and the workers they employ, while enterprises are apparently more aware that they could be subject to inspections.”
Informality: Causes and Consequences for Development (2020, background): “In a follow-up paper (Almeida & Carneiro 2012), the authors show that more inspections cause modest reductions in the proportion of formal workers and self-employed and an increase in non-employment.”
Entry Regulation and the Formalization of Microenterprises in Developing Countries (2013, background): “Almeida and Carneiro (2012) study the impact of greater enforcement of labor regulations in Brazil by using geographical variation in the likelihood of enforcement.”