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

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  • Almeida, Rita
  • Carneiro, Pedro

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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Bibliographic Info

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

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References

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Citations

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Cited by:
  1. Rafael La Porta & Andrei Shleifer, 2008. "The Unofficial Economy and Economic Development," NBER Working Papers 14520, National Bureau of Economic Research, Inc.
  2. Angel-Urdinola, Diego F. & Kuddo, Arvo, 2010. "Key characteristics of employment regulation in the Middle East and North Africa," Social Protection Discussion Papers 55674, The World Bank.
  3. Kuddo, Arvo, 2009. "Labor laws in Eastern European and Central Asian countries : minimum norms and practices," Social Protection Discussion Papers 51698, The World Bank.
  4. Diego Angel-Urdinola & Amina Semlali, 2010. "Labor Markets and School-to-Work Transition in Egypt : Diagnostics, Constraints, and Policy Framework," World Bank Other Operational Studies 13050, The World Bank.
  5. Dan Andrews & Aida Caldera Sánchez & Åsa Johansson, 2011. "Towards a Better Understanding of the Informal Economy," OECD Economics Department Working Papers 873, OECD Publishing.
  6. Fox, Louise & Oviedo, Ana Maria, 2008. "Institutions and labor market outcomes in Sub-Saharan Africa," Policy Research Working Paper Series 4721, The World Bank.
  7. Danielle Venn, 2009. "Legislation, Collective Bargaining and Enforcement: Updating the OECD Employment Protection Indicators," OECD Social, Employment and Migration Working Papers 89, OECD Publishing.

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