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Enforcement of Regulation, Informal Labor and Firm Performance

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  • Almeida, Rita K.

    ()
    (World Bank)

  • Carneiro, Pedro

    ()
    (University College London)

Abstract

This paper investigates how enforcement of labor regulation affects the firm's use of informal employment and its impact on firm performance. Using firm level data on informal employment and firm performance, 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 amount of informal employment. Furthermore, by reducing the firm's access to unregulated labor, stricter enforcement also decreases average wages, productivity and investment. Our results are robust to several specification changes, and to instrumenting enforcement with 1) measures of access of labor inspectors to firms and 2) measures of general law enforcement in the area where the firm is located.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1759.

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Length: 47 pages
Date of creation: Sep 2005
Date of revision:
Publication status: published as 'Enforcement of labor regulation and firm size' in: Journal of Comparative Economics, 2009, 37 (1), 28-46
Handle: RePEc:iza:izadps:dp1759

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Keywords: flexibility; informal sector; productivity; labor market regulation; labor demand;

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