Labor Market Regulation and Informality

Luiz Brotherhood, Daniel Da Mata, Cezar Santos, Nezih Guner and Philipp Kircher

No 13864, IDB Publications (Working Papers) from Inter-American Development Bank

Abstract: This paper investigates informal employment in Brazil's highly regulated labor market, focusing on the intensive margin of informality within formal firms. Using a comprehensive dataset of labor audits conducted from 1997 to 2012, we find that formal firms caught with informal workers face sustained slower growth. Informal workers are found across firms of all sizes, and their characteristics closely resemble those of formal employees. Building on these empirical findings, we develop a dynamic general equilibrium model where firms balance the flexibility of informality against potential costs. Our framework can be used to explore government policy implications and to examine the impact of audit strategies on informality, output, and workers welfare.

JEL-codes: H20 J01 J2 L11 (search for similar items in EconPapers)
Date: 2024-11
New Economics Papers: this item is included in nep-dev, nep-dge, nep-iue and nep-lma
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Working Paper: Labor Market Regulation and Informality (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:idb:brikps:13864

DOI: 10.18235/0013267

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