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Enforcement of Labor Regulation and Informality

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  • Almeida, Rita K.

    ()
    (World Bank)

  • Carneiro, Pedro

    ()
    (University College London)

Abstract

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. 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.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5902.

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Length: 79 pages
Date of creation: Aug 2011
Date of revision:
Publication status: published in: American Economic Journal: Applied Economics, 2012, 4 (3), 64-89
Handle: RePEc:iza:izadps:dp5902

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Keywords: labor regulation; informality;

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References

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  1. Goldberg, Pinelopi Koujianou & Pavcnik, Nina, 2003. "The Response of the Informal Sector to Trade Liberalization," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3874, C.E.P.R. Discussion Papers.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Enforcement of Labor Regulation and Informality
    by maximorossi in NEP-LTV blog on 2011-08-23 20:23:36
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:
  1. Margolis, David N., 2014. "By Choice and by Necessity: Entrepreneurship and Self-Employment in the Developing World," IZA Discussion Papers 8273, Institute for the Study of Labor (IZA).
  2. Luz Adriana Flórez, 2014. "The Search and Matching Equilibrium in an Economy with an Informal Sector: A Positive Analysis of Labor Market Policies," BORRADORES DE ECONOMIA 011953, BANCO DE LA REPÚBLICA.
  3. Luz Adriana Flórez, 2014. "The Search and Matching Equilibrium in an Economy with an Informal Sector: A Positive Analysis of Labor Market Policies," Borradores de Economia 831, Banco de la Republica de Colombia.
  4. Gindling, T. H. & Mossaad, Nadwa & Trejos, Juan Diego, 2014. "The Consequences of Increased Enforcement of Legal Minimum Wages in a Developing Country: An Evaluation of the Impact of the Campaña Nacional de Salarios Mínimos in Costa Rica," IZA Discussion Papers 8253, Institute for the Study of Labor (IZA).
  5. Paz, Lourenço S., 2014. "The impacts of trade liberalization on informal labor markets: A theoretical and empirical evaluation of the Brazilian case," Journal of International Economics, Elsevier, Elsevier, vol. 92(2), pages 330-348.
  6. Basu, Arnab K. & Chau, Nancy & Siddique, Zahra, 2011. "Tax Evasion, Minimum Wage Non-Compliance and Informality," IZA Discussion Papers 6228, Institute for the Study of Labor (IZA).
  7. 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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