American Economic Journal:
Applied Economics
ISSN 1945-7782 (Print) | ISSN 1945-7790 (Online)
Enforcement of Labor Regulation and Informality
American Economic Journal: Applied Economics
(pp. 64–89)
Abstract
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. (JEL J31, J63, J88, K31, O15)Citation
Almeida, Rita, and Pedro Carneiro. 2012. "Enforcement of Labor Regulation and Informality." American Economic Journal: Applied Economics 4 (3): 64–89. DOI: 10.1257/app.4.3.64Additional Materials
JEL Classification
- J31 Wage Level and Structure; Wage Differentials
- J63 Labor Turnover; Vacancies; Layoffs
- J88 Labor Standards: Public Policy
- K31 Labor Law
- O15 Economic Development: Human Resources; Human Development; Income Distribution; Migration