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Inequality and Employment in a Dual Economy: Enforcement of Labor Regulation in Brazil

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  • Almeida, Rita K.

    (World Bank)

  • Carneiro, Pedro

    (University College London)

Abstract

This paper studies the impact of an increase in the enforcement of labor regulations on unemployment and inequality, using city level data from Brazil. We find that stricter enforcement (affecting the payment of mandated benefits to formal workers) leads to: higher unemployment, less income inequality, a higher proportion of formal employment, and a lower formal wage premium. Our results are consistent with a model where stricter enforcement causes a contraction in labor demand in the formal sector; and where workers value mandated benefits highly, so that there is an increase in the formal sector labor supply, an increase in the willingness to become unemployed to search for a formal sector job, and a decrease in labor supply to the informal sector.

Suggested Citation

  • Almeida, Rita K. & Carneiro, Pedro, 2007. "Inequality and Employment in a Dual Economy: Enforcement of Labor Regulation in Brazil," IZA Discussion Papers 3094, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp3094
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    References listed on IDEAS

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    2. Roberto PIRES, 2008. "Promoting sustainable compliance: Styles of labour inspection and compliance outcomes in Brazil," International Labour Review, International Labour Organization, vol. 147(2-3), pages 199-229, June.
    3. Gkinni, Eleni & Vasilaki, Eleni, 2013. "Employment protection and income inequality: is there a role for the informal sector?," MPRA Paper 45464, University Library of Munich, Germany.
    4. Paola Salardi, 2016. "The Evolution of Gender and Racial Occupational Segregation Across Formal and Non‐Formal Labor Markets in Brazil, 1987 to 2006," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 62(S1), pages 68-89, August.
    5. Gaaitzen J. Vries, 2014. "Productivity in a Distorted Market: The Case of Brazil's Retail Sector," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(3), pages 499-524, September.
    6. Kaplan, David S. & Sadka, Joyce, 2008. "Enforceability of labor law : evidence from a labor court in Mexico," Policy Research Working Paper Series 4483, The World Bank.
    7. Rita K. Almeida & Z. Bilgen Susanlı, 2012. "Firing Regulations and Firm Size in the Developing World: Evidence from Differential Enforcement," Review of Development Economics, Wiley Blackwell, vol. 16(4), pages 540-558, November.
    8. Adriana D. Kugler, 2019. "Impacts of Labor Market Institutions and Demographic Factors on Labor Markets in Latin America," IMF Working Papers 2019/155, International Monetary Fund.
    9. Bruhn, Miriam & Gallego, Francisco A., 2008. "Good, bad, and ugly colonial activities : studying development across the Americas," Policy Research Working Paper Series 4641, The World Bank.
    10. Erik Jonasson, 2011. "Informal Employment and the Role of Regional Governance," Review of Development Economics, Wiley Blackwell, vol. 15(3), pages 429-441, August.
    11. repec:fgv:epgrbe:v:66:n:2:a:4 is not listed on IDEAS
    12. Almeida, Rita & Carneiro, Pedro, 2009. "Enforcement of labor regulation and firm size," Journal of Comparative Economics, Elsevier, vol. 37(1), pages 28-46, March.
    13. Corseuil, Carlos Henrique L. & Foguel, Miguel Nathan, 2012. "Economic expansion and increase in labout market formality: A poaching approach," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 66(2), June.
    14. Freeman, Richard Barry, 2014. "What Can Latin America Learn from China's Labour Market Reforms?," Scholarly Articles 34548955, Harvard University Department of Economics.
    15. Gudibande, Rohan Ravindra & Jacob, Arun, 2020. "Minimum wages for domestic workers: impact evaluation of the Indian experience," World Development, Elsevier, vol. 130(C).
    16. Adriana Kugler, 2011. "Is there an Anti-labor Bias of Taxes? A Survey of the Evidence from Latin America and Around the World," Research Department Publications 4746, Inter-American Development Bank, Research Department.
    17. Ben Yahmed, Sarra, 2016. "Formal but less equal: Gender wage gaps in formal and informal jobs in Brazil," ZEW Discussion Papers 16-085, ZEW - Leibniz Centre for European Economic Research.
    18. Rohan Ravindra Gudibande & Arun Jacob, 2014. "Minimum Wage Law for Domestic Workers: Impact Evaluation of the Indian Experience," CFD Working Papers 05-2015, Centre for Finance and Development, The Graduate Institute, revised 07 Apr 2015.

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    More about this item

    Keywords

    unemployment; inequality; labor regulations; enforcement; informal sector;
    All these keywords.

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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