This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

  1. Home
  2. Journals
  3. American Economic Journal: Applied Economics
  4. July 2012
  5. Enforcement of Labor Regulation and Informality

Enforcement of Labor Regulation and Informality

  • Rita Almeida
  • Pedro Carneiro
American Economic Journal: Applied Economics
vol. 4, no. 3, July 2012
(pp. 64-89)
Download Full Text PDF

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.4.3.64

Additional 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
There are no comments for this article.
Login to Comment