Do labour market policies reduce the informal economy more effectively than enforcement and deterrence?

Dürdane Şirin Saraçoğlu

Journal of Policy Modeling, 2020, vol. 42, issue 3, 679-698

Abstract: In 2006, Turkish policymakers introduced new measures to reduce informality and encourage formality, in which the primary means of combatting informality were stricter enforcement of existing labor market laws and deterrence through fines, without any appropriate adjustments in formal labour costs. In this paper we show that even without any change in enforcement and deterrence, in an economy growing with capital accumulation like in Turkey, informality gradually and naturally declines. Furthermore, we propose alternative labour market policy changes like reductions in minimum wage and payroll taxes to reduce informal employment share, and assess the relative effectiveness of these policy changes.

Keywords: Segmented labour markets; Informal employment; Payroll taxes; Minimum wage; Dynamic modeling (search for similar items in EconPapers)
JEL-codes: C61 J42 O17 O41 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:42:y:2020:i:3:p:679-698

DOI: 10.1016/j.jpolmod.2020.01.010

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