EconPapers    
Economics at your fingertips  
 

Informality, regulation and productivity: do small firms escape EPL through shadow employment?

Giovanna Vallanti () and Giuseppina Gianfreda ()

Small Business Economics, 2021, vol. 57, issue 3, No 15, 1383-1412

Abstract: Abstract Compliance with labour laws has costs and benefits which depend on the institutional environment in which firms operate. Although several studies have shown a negative effect of informality on firms’ productivity and growth, it is a fact that firms may resort to undeclared employment to escape excessive tax or regulatory burden. Our analysis documents empirically that stricter labour market regulation drives small firms to informality to gain flexibility in hiring and firing decisions. By exploiting the geographical heterogeneity of labour informality across Italian provinces as well as a different firing cost regime for firms above the 15-employee threshold, we provide evidence that firms facing stricter employment protection regulation adjust less in the formal labour market when the cost of accessing informal employment is lower. As a result, we show that an easier access to the informal labour market (partially) offsets the negative effects of stricter labour market regulation on productivity.

Keywords: Informal employment; Tax evasion; EPL; Productivity; Small firms; RDD estimation; D22; E24; E26; J46; L26 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://link.springer.com/10.1007/s11187-020-00353-9 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:sbusec:v:57:y:2021:i:3:d:10.1007_s11187-020-00353-9

Ordering information: This journal article can be ordered from
http://www.springer. ... 29/journal/11187/PS2

DOI: 10.1007/s11187-020-00353-9

Access Statistics for this article

Small Business Economics is currently edited by Zoltan J. Acs and David B. Audretsch

More articles in Small Business Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().

 
Page updated 2022-01-14
Handle: RePEc:kap:sbusec:v:57:y:2021:i:3:d:10.1007_s11187-020-00353-9