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Enforcement of Regulation, Informal Labour, Firm Size and Firm Performance

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  • Almeida, Rita
  • Carneiro, Pedro

Abstract

This paper investigates how enforcement of labour regulation affects the firm's use of informal labour, firm size and firm performance. Using firm level data on employment, capita, and output, census data on informal employment at the city level, and administrative data on enforcement of regulation at the city level, we show that in areas where law enforcement is stricter firms employ a smaller proportion of informal workers. Furthermore, by reducing the firm's access to unregulated labour stricter enforcement is also associated with smaller firms, less fluid labour markets, and (possibly) lower labour productivity. We control for different regional and firm characteristics, and we instrument enforcement with the distance between firm location and the location of an enforcement office, a measure of access of labour inspectors to firms. Taken together, our findings suggest that increased access to labour flexibility frees the firm from growth constraints, and it is likely to contribute to an improvement in productivity.

Suggested Citation

  • Almeida, Rita & Carneiro, Pedro, 2006. "Enforcement of Regulation, Informal Labour, Firm Size and Firm Performance," CEPR Discussion Papers 5976, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:5976
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Katherine Cuff & Steeve Mongrain & Joanne Roberts, 2016. "Dual Corporate Tax Evasion," Discussion Papers dp16-12, Department of Economics, Simon Fraser University.
    2. Diego Angel-Urdinola & Amina Semlali, 2010. "Labor Markets and School-to-Work Transition in Egypt : Diagnostics, Constraints, and Policy Framework," World Bank Other Operational Studies 13050, The World Bank.
    3. Angel-Urdinola, Diego F. & Kuddo, Arvo, 2010. "Key characteristics of employment regulation in the Middle East and North Africa," Social Protection and Labor Policy and Technical Notes 55674, The World Bank.
    4. Rafael La Porta & Andrei Shleifer, 2008. "The Unofficial Economy and Economic Development," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, pages 275-363.
    5. Dan Andrews & Aida Caldera Sánchez & Åsa Johansson, 2011. "Towards a Better Understanding of the Informal Economy," OECD Economics Department Working Papers 873, OECD Publishing.
    6. Danielle Venn, 2009. "Legislation, Collective Bargaining and Enforcement: Updating the OECD Employment Protection Indicators," OECD Social, Employment and Migration Working Papers 89, OECD Publishing.
    7. Katherine Cuff & Steeve Mongrain & Joanne Roberts, 2017. "Shades of Grey: Business Compliance with Fiscal and Labour Regulations," Discussion Papers dp17-07, Department of Economics, Simon Fraser University.
    8. Kuddo, Arvo, 2009. "Labor laws in Eastern European and Central Asian countries : minimum norms and practices," Social Protection and Labor Policy and Technical Notes 51698, The World Bank.
    9. Fox, Louise & Oviedo, Ana Maria, 2008. "Institutions and labor market outcomes in Sub-Saharan Africa," Policy Research Working Paper Series 4721, The World Bank.

    More about this item

    Keywords

    employment; informal sector; labour demand; labour markets; productivity; regulation;

    JEL classification:

    • H00 - Public Economics - - General - - - General
    • H10 - Public Economics - - Structure and Scope of Government - - - General
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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