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Mandated benefits, employment, and inequality in a dual economy

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  • Almeida, Rita
  • Carneiro, Pedro

Abstract

The authors study the effect of enforcement of labor regulation in Brazil, an economy with a large informal sector and strict labor law. Enforcement affects mainly the degree of compliance with mandated benefits (severance pay, health, and safety) in the formal sector and the registration of informal workers. The authors find that stricter enforcement leads to higher unemployment but lower income inequality. The authors also show that, at the top of the formal wage distribution, workers bear the cost of mandated benefits by receiving lower wages. This is not true at the bottom, because of downward wage rigidity. 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.

Suggested Citation

  • Almeida, Rita & Carneiro, Pedro, 2008. "Mandated benefits, employment, and inequality in a dual economy," Social Protection and Labor Policy and Technical Notes 45051, The World Bank.
  • Handle: RePEc:wbk:hdnspu:45051
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    Cited by:

    1. Milan Vodopivec, 2013. "Introducing unemployment insurance to developing countries," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 2(1), pages 1-23, December.
    2. 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, March.
    3. Kuddo, Arvo, 2009. "Structural educational reform : evidence from a teacher's displacement program in Armenia," Social Protection and Labor Policy and Technical Notes 47164, The World Bank.
    4. 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.
    5. Woolford, Geoff, 2009. "Social protection for migrants from the Pacific Islands in Australia and New Zealand," Social Protection and Labor Policy and Technical Notes 49174, The World Bank.
    6. Chae, ChangKyun & Chung, Jaeho, 2009. "Pre-employment vocational education and training in Korea," Social Protection and Labor Policy and Technical Notes 52186, The World Bank.
    7. Makhema, Mpho, 2009. "Social protection for refugees and asylum seekers in the Southern Africa Development Community (SADC)," Social Protection and Labor Policy and Technical Notes 49168, The World Bank.
    8. 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).
    9. 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 and Labor Policy and Technical Notes 49172, The World Bank.
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    12. Ferrer, Ana M. & Riddell, W. Craig, 2009. "Unemployment insurance savings accounts in Latin America : overview and assessment," Social Protection and Labor Policy and Technical Notes 49173, The World Bank.
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    14. Koettl, Johannes, 2009. "Human trafficking, modern day slavery, and economic exploitation," Social Protection and Labor Policy and Technical Notes 49802, The World Bank.
    15. Woo, Kye Lee, 2009. "Productivity increases in SMEs : with special emphasis on in-service training of workers in Korea," Social Protection and Labor Policy and Technical Notes 51251, The World Bank.
    16. 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 and Labor Policy and Technical Notes 56092, The World Bank.
    17. Ra, Young-Sun & Shim, Kyung Woo, 2009. "The Korean case study : past experience and new trends in training policies," Social Protection and Labor Policy and Technical Notes 53696, The World Bank.

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