Enforcement of Labor Regulation and Informality

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu Terms of use: Documents in D I S C U S S I O N P A P E R S E R I E S ABSTRACT Enforcement of Labor Regulation and Informality *Enforcement of labor regulations in the formal sector may drive workers to informality because they increase the costs of formal labor. But better compliance with mandated benefits makes it attractive to be a formal employee. We show that, in locations with frequent inspections workers pay for mandated benefits by receiving lower wages. Wage rigidity prevents downward adjustment at the bottom of the wage distribution. As a result, lower paid formal sector jobs become attractive to some informal workers, inducing them to want to move to the formal sector.

A Helping Hand or the Long Arm of the Law? Experimental Evidence on What Governments Can Do to Formalize Firms

“…Alm et al 1992, Andreoni et al, 1998. Several more recent non-experimental studies in developing countries have found evidence that the degree of enforcement matters for labor informality (Ronconi, 2007;Almeida and Carneiro, 2012), but there is no reliable evidence we are aware of on the impacts of enforcement on firm informality.…”

Estimating the Effects of the Minimum Wage in a Developing Country: A Density Discontinuity Design Approach

“…This implies the identification of the entire latent wage distribution f 0 (w). Using the latent wage density and the function Λ(w) allows the identification of the latent densities of the formal and informal sectors and, finally, the remaining parameters π (1) m and π…”

“…The model allows wages in the informal sector to be affected by the introduction of the minimum wage -an effect captured by the parameter π m . This model also allows workers to move to the informal sector as a response to the minimum wage -this event is captured by the parameter π (1) d . Combined, these unemployment and sector mobility effects allow the minimum wage to affect the relative size of the formal sector in the economy, which in turn can affect labor tax revenues.…”

“…10 In this case, the observed sector will be S(1) = 0, being different from the latent sector. With probability π (1) m , the worker earns the minimum wage (W (1) = m, S(1) = 1). With the complementary probability (π…”

Formalization of jobs and firms in emerging market economies through registration reform

“…Enforcement, implemented through frequent visits or threats of visits by labor inspectors and the effects on informality and formality are an important, understudied dimension of encouraging formalization. For example, a study in Brazil finds that increases in labor inspections were followed by increases in formal employment and decreases in informal employment [12].…”