This paper investigates how enforcement of labor regulation affects the firm's use of informal labor and 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 is also associated with lower labor productivity. We control for different regional and firm characteristics, and we instrument enforcement with a measure of the access of labor inspectors to firms. Taken together, our findings suggest that increased access to labor flexibility significantly improves firm performance.
Authors
![Pedro Carneiro](/sites/default/files/styles/square_desktop/public/2022-07/Pedro_Carneiro.jpg?itok=jj8qq067)
Research Fellow University College London
Pedro is a Professor of Economics at University College London and an economist in the IFS' Centre for Microdata Methods and Practice (cemmap).
![Person graphic](/sites/default/files/styles/square_desktop/public/2022-06/IFS-person-graphic.png?itok=hWCtTSrz)
Rita Almeida
Working Paper details
- DOI
- 10.1920/wp.cem.2006.0206
- Publisher
- IFS
Suggested citation
Almeida, R and Carneiro, P. (2006). Enforcement of regulation, informal labor and firm performance. London: IFS. Available at: https://ifs.org.uk/publications/enforcement-regulation-informal-labor-and-firm-performance (accessed: 1 July 2024).
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