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Enforcement of Regulation, Informal Labour, Firm Size and Firm Performance

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Author Info
Almeida, Rita
Carneiro, Pedro

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Abstract

This paper investigates how enforcement of labour regulation affects the firm's use of informal labour, firm size and firm performance. Using firm level data on employment, capita, and output, census data on informal employment at the city level, and administrative data on enforcement of regulation at the city level, we show that in areas where law enforcement is stricter firms employ a smaller proportion of informal workers. Furthermore, by reducing the firm's access to unregulated labour stricter enforcement is also associated with smaller firms, less fluid labour markets, and (possibly) lower labour productivity. We control for different regional and firm characteristics, and we instrument enforcement with the distance between firm location and the location of an enforcement office, a measure of access of labour inspectors to firms. Taken together, our findings suggest that increased access to labour flexibility frees the firm from growth constraints, and it is likely to contribute to an improvement in productivity.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5976.

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Date of creation: Dec 2006
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Handle: RePEc:cpr:ceprdp:5976

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Related research
Keywords: employment; informal sector; labour demand; labour markets; productivity; regulation;

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Find related papers by JEL classification:
H00 - Public Economics - - General - - - General
H10 - Public Economics - - Structure and Scope of Government - - - General
J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
K20 - Law and Economics - - Regulation and Business Law - - - General
L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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Cited by:
(explanations, 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.)

  1. Rafael La Porta & Andrei Shleifer, 2008. "The Unofficial Economy and Economic Development," NBER Working Papers 14520, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Fox, Louise & Oviedo, Ana Maria, 2008. "Institutions and labor market outcomes in Sub-Saharan Africa," Policy Research Working Paper Series 4721, The World Bank. [Downloadable!]
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