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Enforcement of regulation, informal labor and firm performance

  • Rita Almeida

    (Institute for Fiscal Studies)

  • Pedro Carneiro

    ()

    (Institute for Fiscal Studies and University College London)

This paper investigates how enforcement of labor regulation affects the firm's use of informal labor and firm performance. Using firm level data on informal employment and firm performance, 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 amount of informal employment. Furthermore, by reducing the firm's access to unregulated labor, stricter enforcement is also associated with lower labor productivity. We control for different regional and firm characteristics, and we instrument enforcement with a measure of the access of labor inspectors to firms. Taken together, our findings suggest that increased access to labor flexibility significantly improves firm performance.

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File URL: http://cemmap.ifs.org.uk/wps/cwp0602.pdf
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Paper provided by Centre for Microdata Methods and Practice, Institute for Fiscal Studies in its series CeMMAP working papers with number CWP02/06.

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Length: 36 pp.
Date of creation: Jan 2006
Date of revision:
Handle: RePEc:ifs:cemmap:02/06
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  18. Steven Shavell & A. Mitchell Polinsky, 2000. "The Economic Theory of Public Enforcement of Law," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 45-76, March.
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