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.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5902.
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
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Other versions of this item:
- J2 - Labor and Demographic Economics - - Demand and Supply of Labor
- J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-08-22 (All new papers)
- NEP-IUE-2011-08-22 (Informal & Underground Economics)
- NEP-LAB-2011-08-22 (Labour Economics)
- NEP-LMA-2011-08-22 (Labor Markets - Supply, Demand, & Wages)
- NEP-LTV-2011-08-22 (Unemployment, Inequality & Poverty)
- NEP-REG-2011-08-22 (Regulation)
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.:
- Lars Ljungqvist, 2002. "How Do Lay--off Costs Affect Employment?," Economic Journal, Royal Economic Society, vol. 112(482), pages 829-853, October.
- Alvarez, Fernando & Veracierto, Marcelo, 2001. "Severance payments in an economy with frictions," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 477-498, June.
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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