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Enforcement of Regulation, Informal Labor and Firm Performance

  • Almeida, Rita K.

    ()

    (World Bank)

  • Carneiro, Pedro

    ()

    (University College London)

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, 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 also decreases average wages, productivity and investment. Our 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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File URL: http://ftp.iza.org/dp1759.pdf
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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1759.

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Length: 47 pages
Date of creation: Sep 2005
Date of revision:
Publication status: published as 'Enforcement of labor regulation and firm size' in: Journal of Comparative Economics, 2009, 37 (1), 28-46
Handle: RePEc:iza:izadps:dp1759
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  6. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 1-54 National Bureau of Economic Research, Inc.
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  18. 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.
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  22. 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.
  23. Ricardo Paes de Barros & Carlos Henrique Corseuil, 2001. "The Impact of Regulations on Brazilian Labor Market Performance," IDB Publications (Working Papers) 43198, Inter-American Development Bank.
  24. Timothy Besley & Robin Burgess, 2004. "Can Labor Regulation Hinder Economic Performance? Evidence from India," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 91-134.
  25. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages C1-33, March.
  26. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
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