Enforcement of regulation, informal labor and firm performance

Rita Almeida () and Pedro Carneiro

No CWP02/06, CeMMAP working papers from Centre for Microdata Methods and Practice, Institute for Fiscal Studies

Abstract: This paper investigates how enforcement of labor regulation affects the firm's use of informal labor and firm performance. Using firm level data on informal employment and firm performance, and administrative data on enforcement of regulation at the city level, we show that in areas where law enforcement is stricter firms employ a smaller amount of informal employment. Furthermore, by reducing the firm's access to unregulated labor, stricter enforcement is also associated with lower labor productivity. We control for different regional and firm characteristics, and we instrument enforcement with a measure of the access of labor inspectors to firms. Taken together, our findings suggest that increased access to labor flexibility significantly improves firm performance.

Keywords: Informal sector; labor markets; regulation; productivity (search for similar items in EconPapers)
JEL-codes: J3 J6 O17 (search for similar items in EconPapers)
Pages: 36 pp.
Date: 2006-01-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Related works:
Working Paper: Enforcement of Regulation, Informal Labor and Firm Performance (2005)
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