Enforcement of Regulation, Informal Labor and Firm Performance

Rita Almeida (ralmeida@worldbank.org) and Pedro Carneiro

No 1759, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper investigates how enforcement of labor regulation affects the firm's use of informal employment and its impact on 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 also decreases average wages, productivity and investment. Our results are robust to several specification changes, and to instrumenting enforcement with 1) measures of access of labor inspectors to firms and 2) measures of general law enforcement in the area where the firm is located.

Keywords: flexibility; informal sector; productivity; labor market regulation; labor demand (search for similar items in EconPapers)
JEL-codes: J3 J6 O17 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2005-09
New Economics Papers: this item is included in nep-reg
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Citations: View citations in EconPapers (30)

Published - published as 'Enforcement of labor regulation and firm size' in: Journal of Comparative Economics, 2009, 37 (1), 28-46

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Related works:
Working Paper: Enforcement of regulation, informal labor and firm performance (2006)
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