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Mandated benefits, employment, and inequality in a dual economy

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Author Info

  • Almeida, Rita
  • Carneiro, Pedro

Abstract

The authors study the effect of enforcement of labor regulation in Brazil, an economy with a large informal sector and strict labor law. Enforcement affects mainly the degree of compliance with mandated benefits (severance pay, health, and safety) in the formal sector and the registration of informal workers. The authors find that stricter enforcement leads to higher unemployment but lower income inequality. The authors also show that, at the top of the formal wage distribution, workers bear the cost of mandated benefits by receiving lower wages. This is not true at the bottom, because of downward wage rigidity. As a result, formal sector jobs at the bottom of the wage distribution become more attractive, inducing the low skilled self-employed to search for formal jobs.

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Bibliographic Info

Paper provided by The World Bank in its series Social Protection Discussion Papers with number 45051.

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Date of creation: 01 Aug 2008
Date of revision:
Handle: RePEc:wbk:hdnspu:45051

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Related research

Keywords: Labor Markets; Transport Economics Policy&Planning; Labor Policies; Economic Theory&Research;

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References

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Citations

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Cited by:
  1. Woolford, Geoff, 2009. "Social protection for migrants from the Pacific Islands in Australia and New Zealand," Social Protection Discussion Papers 49174, The World Bank.
  2. Vodopivec, Milan & Madzar, Lilijana & Dolenc, Primoz, 2009. "Non-performance of the severance pay program in Slovenia," Social Protection Discussion Papers 47070, The World Bank.
  3. Vodopivec, Milan, 2009. "Introducing Unemployment Insurance to Developing Countries," IZA Policy Papers 6, Institute for the Study of Labor (IZA).
  4. Ra, Young-Sun & Shim, Kyung Woo, 2009. "The Korean case study : past experience and new trends in training policies," Social Protection Discussion Papers 53696, The World Bank.
  5. Chae, ChangKyun & Chung, Jaeho, 2009. "Pre-employment vocational education and training in Korea," Social Protection Discussion Papers 52186, The World Bank.
  6. Piggott, John & Sane, Renuka, 2009. "Indexing pensions," Social Protection Discussion Papers 52445, The World Bank.
  7. Alvaro Forteza, 2010. "The Portability of Pension Rights: General Principles and the Caribbean Case," Development Policy Review, Overseas Development Institute, vol. 28(2), pages 237-255, 03.
  8. Woo, Kye Lee, 2009. "Productivity increases in SMEs : with special emphasis on in-service training of workers in Korea," Social Protection Discussion Papers 51251, The World Bank.
  9. Lord, Janet & Posarac, Aleksandra & Nicoli, Marco & Peffley, Karen & Mcclain-Nhlapo, Charlotte & Keogh, Mary, 2010. "Disability and international cooperation and development : a review of policies and practices," Social Protection Discussion Papers 56092, The World Bank.
  10. Koettl, Johannes, 2009. "Human trafficking, modern day slavery, and economic exploitation," Social Protection Discussion Papers 49802, The World Bank.
  11. Avato, Johanna & Koettl, Johannes & Sabates-Wheeler, Rachel, 2009. "Definitions, good practices, and global estimates on the status of social protection for international migrants," Social Protection Discussion Papers 49172, The World Bank.
  12. Kuddo, Arvo, 2009. "Structural educational reform : evidence from a teacher's displacement program in Armenia," Social Protection Discussion Papers 47164, The World Bank.
  13. James, Estelle, 2009. "Rethinking survivor benefits," Social Protection Discussion Papers 52919, The World Bank.
  14. Makhema, Mpho, 2009. "Social protection for refugees and asylum seekers in the Southern Africa Development Community (SADC)," Social Protection Discussion Papers 49168, The World Bank.
  15. Ferrer, Ana & Riddell, W. Craig, 2011. "Unemployment Insurance Savings Accounts in Latin America: Overview and Assessment," IZA Discussion Papers 5577, Institute for the Study of Labor (IZA).
  16. Holzmann, Robert, 2010. "Bringing Financial Literacy and Education to Low and Middle Income Countries: The Need to Review, Adjust, and Extend Current Wisdom," IZA Discussion Papers 5114, Institute for the Study of Labor (IZA).

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