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Mandated benefits, employment, and inequality in a dual economy

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  • Almeida, Rita
  • Carneiro, Pedro

Abstract

This paper studies the effect of enforcing labor regulation in an economy with a dual labor market. The analysis uses data from Brazil, a country with a large informal sector and strict labor law, where enforcement affects mainly the degree of compliance with mandated benefits (severance pay and health and safety conditions) in the formal sector, and the registration of informal workers. The authors find that stricter enforcement leads to higher unemployment but lower income inequality. They also show that, at the top of the formal wage distribution, workers bear the cost of mandated benefits by receiving lower wages. Wage rigidity (due, say, to the minimum wage) prevents this downward adjustment at the bottom of the income distribution. 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 Policy Research Working Paper Series with number 5119.

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Date of creation: 01 Nov 2009
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Handle: RePEc:wbk:wbrwps:5119

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

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Citations

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Cited by:
  1. James, Estelle, 2009. "Rethinking survivor benefits," Social Protection Discussion Papers 52919, The World Bank.
  2. Woolford, Geoff, 2009. "Social protection for migrants from the Pacific Islands in Australia and New Zealand," Social Protection Discussion Papers 49174, The World Bank.
  3. 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.
  4. Chae, ChangKyun & Chung, Jaeho, 2009. "Pre-employment vocational education and training in Korea," Social Protection Discussion Papers 52186, The World Bank.
  5. Vodopivec, Milan, 2009. "Introducing unemployment insurance to developing countries," Social Protection Discussion Papers 49170, The World Bank.
  6. 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).
  7. 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.
  8. 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.
  9. Rita Almeida & Pedro Carneiro, Renata Narita, 2013. "Producing Higher Quality Jobs: Enforcement of Mandated Benefits across Brazilian Cities between 1996-2007," Working Papers, Department of Economics 2013_22, University of São Paulo (FEA-USP).
  10. Piggott, John & Sane, Renuka, 2009. "Indexing pensions," Social Protection Discussion Papers 52445, The World Bank.
  11. 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.
  12. Milan Vodopivec & Lilijana Madjar & Primoz Dolenc, 2009. "Non-performance of the Severance Pay Program in Slovenia," Financial Theory and Practice, Institute of Public Finance, vol. 33(1), pages 89-102.
  13. 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.
  14. Kuddo, Arvo, 2009. "Structural educational reform : evidence from a teacher's displacement program in Armenia," Social Protection Discussion Papers 47164, The World Bank.
  15. 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.
  16. Holzmann, Robert, 2010. "Bringing financial literacy and education to low and middle income countries : the need to review, adjust, and extend current wisdom," Social Protection Discussion Papers 56501, The World Bank.
  17. Koettl, Johannes, 2009. "Human trafficking, modern day slavery, and economic exploitation," Social Protection Discussion Papers 49802, The World Bank.

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