Enforcement of Labor Regulation and Informality
AbstractEnforcement 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. We 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. (JEL J31, J63, J88, K31, O15)
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Bibliographic InfoArticle provided by American Economic Association in its journal American Economic Journal: Applied Economics.
Volume (Year): 4 (2012)
Issue (Month): 3 (July)
Other versions of this item:
- Almeida, Rita K. & Carneiro, Pedro, 2011. "Enforcement of Labor Regulation and Informality," IZA Discussion Papers 5902, Institute for the Study of Labor (IZA).
- Rita Almeida & Pedro Carneiro, 2011. "Enforcement of labor regulation and informality," CeMMAP working papers CWP29/11, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
- J88 - Labor and Demographic Economics - - Labor Standards - - - Public Policy
- K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law
- O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Alvarez, Fernando & Veracierto, Marcelo, 2001. "Severance payments in an economy with frictions," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 477-498, June.
- Lars Ljungqvist, 2002. "How Do Lay--off Costs Affect Employment?," Economic Journal, Royal Economic Society, vol. 112(482), pages 829-853, October.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Enforcement of Labor Regulation and Informality
by maximorossi in NEP-LTV blog on 2011-08-23 20:23:36
- Poschke, Markus, 2013. "The Decision to Become an Entrepreneur and the Firm Size Distribution: A Unifying Framework for Policy Analysis," IZA Discussion Papers 7757, Institute for the Study of Labor (IZA).
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