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Enforcement of labor regulation, informal labor, and firm performance

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Author Info
Almeida, Rita
Carneiro, Pedro

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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, the authors 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. The 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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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3756.

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Date of creation: 01 Oct 2005
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Handle: RePEc:wbk:wbrwps:3756

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Keywords: Labor Markets; Work&Working Conditions; Labor Standards; Municipal Financial Management; Labor Management and Relations;

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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.:
  1. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Juan Botero, 2003. "The Regulation of Labor," NBER Working Papers 9756, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Loayza, Norman V. & Oviedo, Ana Maria & Serven, Luis, 2005. "The impact of regulation on growth and informality - cross-country evidence," Policy Research Working Paper Series 3623, The World Bank. [Downloadable!]
  3. Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 1998. "Regulatory Discretion and the Unofficial Economy," American Economic Review, American Economic Association, vol. 88(2), pages 387-92, May. [Downloadable!] (restricted)
  4. Levitt, Steven D, 1997. "Using Electoral Cycles in Police Hiring to Estimate the Effect of Police on Crime," American Economic Review, American Economic Association, vol. 87(3), pages 270-90, June. [Downloadable!] (restricted)
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  5. Blau, Francine D & Kahn, Lawrence M, 1996. "International Differences in Male Wage Inequality: Institutions versus Market Forces," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 791-836, August. [Downloadable!] (restricted)
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  6. Kugler, Adriana & Kugler, Maurice, 2003. "The Labor Market Effects of Payroll Taxes in a Middle-Income Country: Evidence from Colombia," IZA Discussion Papers 852, Institute for the Study of Labor (IZA). [Downloadable!]
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  7. James Heckman & Carmen Pages, 2003. "Law and Employment: Lessons from Latin America and the Caribbean," NBER Working Papers 10129, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Loayza, Norman V., 1996. "The economics of the informal sector: a simple model and some empirical evidence from Latin America," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 45(1), pages 129-162, December. [Downloadable!] (restricted)
  9. Gruber, Jonathan, 1997. "The Incidence of Payroll Taxation: Evidence from Chile," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages S72-101, July. [Downloadable!] (restricted)
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  10. Jakob Svensson, 2003. "Who Must Pay Bribes And How Much? Evidence From A Cross Section Of Firms," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 207-230, February. [Downloadable!] (restricted)
  11. Nicoletti, Giuseppe & Scarpetta, Stefano, 2003. "Regulation, productivity, and growth : OECD evidence," Policy Research Working Paper Series 2944, The World Bank. [Downloadable!]
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  12. Scarpetta, Stefano & Tressel, Thierry, 2004. "Boosting productivity via innovation and adoption of new technologies : any role for labor market institutions?," Policy Research Working Paper Series 3273, The World Bank. [Downloadable!]
  13. Ricardo Paes de Barros & Carlos Henrique Corseuil, 2001. "The Impact of Regulations on Brazilian Labor Market Performance," RES Working Papers 3124, Inter-American Development Bank, Research Department. [Downloadable!]
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  14. Steven D. Levitt, 1998. "Juvenile Crime and Punishment," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1156-1185, December. [Downloadable!] (restricted)
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  15. Maloney, William F., 2004. "Informality Revisited," World Development, Elsevier, vol. 32(7), pages 1159-1178, July. [Downloadable!] (restricted)
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  16. Thomas J. Holmes, 1998. "The Effect of State Policies on the Location of Manufacturing: Evidence from State Borders," Journal of Political Economy, University of Chicago Press, vol. 106(4), pages 667-705, August. [Downloadable!] (restricted)
  17. Timothy Besley & Robin Burgess, 2004. "Can Labor Regulation Hinder Economic Performance? Evidence from India," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 91-134, February. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, 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.)

  1. Áureo de Paula & José A. Scheinkman, 2007. "The Informal Sector," NBER Working Papers 13486, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Mariano Bosch & Julen Esteban-Pretel, 2009. "Cyclical Informality and Unemployment," CIRJE F-Series CIRJE-F-613, CIRJE, Faculty of Economics, University of Tokyo. [Downloadable!]
  3. Pedro S. Martins & Luiz Alberto Esteves, 2006. "Is There Rent Sharing In Developing Countries? Matched-Panel Evidence From Brazil," Anais do XXXIV Encontro Nacional de Economia [Proceedings of the 34th Brazilian Economics Meeting] 158, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics]. [Downloadable!]
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  4. Aureo de Paula & Jose A. Scheinkman, 2007. "The Informal Sector, Third Version," PIER Working Paper Archive 08-018, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 21 May 2008. [Downloadable!]
  5. Aureo de Paula & Jose A. Scheinkman, 2009. "Value Added Taxes, Chain Effects and Informality," PIER Working Paper Archive 09-030, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania. [Downloadable!]
  6. Aureo de Paula & Jose A Sheinkman, 2007. "The Informal Sector," Levine's Bibliography 122247000000001663, UCLA Department of Economics. [Downloadable!]
  7. Armando João Dalla Costa, 2005. "Sucessão E Sucesso Nas Empresas Familiares," Working Papers 0017, Universidade Federal do Paraná, Department of Economics. [Downloadable!]
  8. Gatti, Roberta & Honorati, Maddalena, 2008. "Informality among formal firms : firm-level, cross-country evidence on tax compliance and access to credit," Policy Research Working Paper Series 4476, The World Bank. [Downloadable!]
    Other versions:
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