Are Labor Inspections Protecting Workers' Rights? Adding the Evidence from Size-based Labor Regulations and Fines in Peru

Abstract

This paper analyzes how changes in the enforcement of labor regulations impact on the compliance rate in a context where the labor rules and the characteristics of the labor inspection system differ by firm size. In addition to the channels analyzed in the existing literature -the deterrence effect of labor inspections and the movement of displaced workers into the informal sector, this paper adds a margin of adjustment not analyzed before: firms can reduce their size to take advantage of lower penalties for violating the labor rules and/or less stringent regulations. I analyze empirically which forces have dominated for workers employed in firms of different size in Peru during [2008][2009][2010][2011][2012][2013]. I measure the enforcement of labor regulations as the number of labor inspections per hundred workers at the regional level, and I instrument it using a measure of the arrival cost of labor inspectors to the firms. The findings reveal that the degree of enforcement had little impact on the compliance with labor regulations. The effect of firms reducing their size to enjoy lower fines and/or less stringent regulations was small in magnitude and the direction of the effect was not clear. The general lack of effect of the enforcement measure on the compliance with the labor rules indicates that the labor inspection system is not effective in Peru, either because it is not able to generate the incentives to comply with labor regulations (e.g. because of lack of resources) or because it fails to overcome the consequences of the adjustment process associated to an increase in the compliance level (e.g. displaced workers moving into the informal sector of the economy).

Information and communication technology adoption in micro and small firms: Can internet access improve labour productivity?

“…Among these services is the use of the “Planilla.” The Planilla is the formal register of labour relationships. Wage employees who are registered in the Planilla are entitled to several benefits according to the Peruvian law (Viollaz, ). In order to analyse whether internet adoption impacts positively on labour productivity through a formalization channel, I use an indicator for whether firm i uses the Planilla as an outcome variable.…”

ICT Adoption in Micro and Small Firms: Can Internet Access Improve Labor Productivity?

“…The Planilla is the formal register of labor relationships. Wage employees who are registered in the Planilla are entitled to several benefits according to the Peruvian law (Viollaz, 2017). In order to analyze whether internet adoption impacts positively on labor productivity through a formalization channel, I use as outcome variable an indicator for whether firm i uses the Planilla.…”

Enforcement of labor market regulations: heterogeneous compliance and adjustment across gender

“…These studies use the variation in the enforcement of labor regulations rather than or in addition to changes in the regulation itself to identify effects on labor outcomes. Within country studies have concluded that higher enforcement of the labor law reduces firms' size and possibly productivity (Almeida and Carneiro 2009), decreases job creation and increases job destruction (Almeida and Poole 2017), increases the compliance with labor market regulations (Ronconi 2010;Almeida et al 2013) or does not have any effect on it (Bhorat et al 2012;Viollaz 2018), increases formal employment and nonemployment, reduces informal employment, leads to a fall in formal wages at the top of the wage distribution and to informal wage increases (Almeida and Carneiro 2012), and reduces deprovision of non-mandated benefits (Almeida et al 2013).…”