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

Viollaz, Mariana (2016): 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 2008-2013. 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).

• Item Type: MPRA Paper
• Language: English
• Keywords: enforcement of labor regulations; size-based labor regulations; compliance with labor laws; Peru
• Subjects: J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J30 - General; J - Labor and Demographic Economics > J8 - Labor Standards: National and International > J83 - Workers' Rights; J - Labor and Demographic Economics > J8 - Labor Standards: National and International > J88 - Public Policy

References

Ahmad, A. and C. Pagés (2007). “Are all labor regulations equal? Assessing the effects of job security, labor dispute and contract labor laws in India”. Policy Research Working Paper 4259. The World Bank.

Almeida, R.K. and P. Carneiro (2009). “Enforcement of Labor Regulation and Firm Size”. Journal of Comparative Economics, 37: 28-46.

Almeida, R.K. and P. Carneiro (2012). “Enforcement of Labor Regulation and Informality”. American Economic Journal: Applied Economics, 4(3): 64-89.

Almeida, R.K., P. Carneiro and R. Narita (2013). “Producing Higher Quality Jobs: Enforcement of Mandated Benefits across Brazilian Cities between 1996-2007”. Working Paper 2013-22, Department of Economis, University of São Paulo.

Almeida, R.K. and J.P. Poole (2013). “Trade and Labor Reallocation with Heterogeneous Enforcement of Labor Regulations”. IZA Discussion Paper 7358.

Angrist, J.D. and A.B. Krueger (2001). “Instrumental Variables and the Search for Identification: From Supply and Demand to Natural Experiments”. Journal of Economic Perspectives, 15(4): 69-85.

Amin, M. (2008). “Labor Regulations and Employment in India’s Retail Stores”. Social Protection Discussion Paper 0816. The World Bank.

Autor, D., W. Kerr and A. Kugler (2007). “Do employment protections reduce productivity? Evidence from U.S. states”. NBER Working Paper 12860.

Besley, T. and R. Burgess (2004). “Can labor regulation hinder economic performance? Evidence from India”. Quarterly Journal of Economics, 119(1): 91–134.

Bhorat, H., R. Kanbur, and N. Mayet (2012). “Estimating the Causal Effect of Enforcement on Minimum Wage Compliance: The Case of South Africa”. Review of Development Economics, 16(4): 608-623.

Chetty, R., J. Friedman, T. Olsen, and L. Pistaferri (2011). “Adjustment Costs, Firm Responses, and Micro vs. Macro Labor Supply Elasticities: Evidence from Danish Tax Records”. Quarterly Journal of Economics, 126: 749-804.

Díaz, J.J. (2014a). “Perú: Leve mejoría en el cumplimiento, pero limitado por la alta informalidad”. In A. Marinakis (ed.). Incumplimiento con el Salario Mínimo en América Latina. El peso de los factores económicos e institucionales. International Labour Organization.

Díaz, J.J. (2014b). “Formalización empresarial y laboral”. In R. Infante and J. Chacaltana (eds.). Hacia un desarrollo inclusivo. El caso del Perú. International Labour Organization.

Garicano, L., C. Lelarge, and J. Van Reenen (2013). “Firm Size Distortions and the Productivity Distribution: Evidence from France”. NBER Working Paper 18841.

ILO (2014). “Evolución del empleo informal en Perú: 2004-2012”. Notas sobre formalización. International Labour Organization.

ILO (2015). “Fortalecimiento de la inspección laboral en Perú: la Planilla Electrónica y el Plan RETO”. Notas sobre tendencias de la inspección del trabajo. International Labour Organization.

Julca Babarzy, M.A. (2013). “Situación de la inspección del trabajo en el Perú y la percepción que tienen de ella las personas que laboran para el sistema y sus usuarios”. Universidad Nacional Mayor de San Marcos.

Kanbur, R. and M. Keen (2014). “Thresholds, Informality, and Partitions of Compliance”. International Tax and Public Finance, 21: 536-559.

Levy, S. (2008). Good Intentions, Bad Outcomes. Social Policy, Informality, and Economic Growth in Mexico. Brooking Institution Press.

Micco, A. and C. Pagés (2006). “The economic effects of employment protection: Evidence from International Industry-Level Data”. IZA Discussion Paper 2433.

Murillo, M.V., L. Ronconi, and A. Schrank (2011). “Latin America Labor Reforms: Evaluating Risk and Security”. In J.A. Ocampo and J. Ross (eds.). The Oxford Handbook of Latin American Economics. Oxford University Press.

Piore, M.J. and A. Schrank (2008). “Toward managed flexibility: The revival of labour inspection in the Latin world”. International Labour Review, 147(1): 1-23.

Rani, U., P. Belser, M. Oelz and S. Ranjbar (2013). “Minimum wage coverage and compliance in developing countries”. International Labour Review, 152(3-4): 381-410.

Requejo Alemán, J.C. (2013). “Fortalecimiento del sistema de inspección del trabajo en el Perú”. Pontificia Universidad Católica del Perú.

Rodríguez, J. and M. Higa (2010). “Informalidad, empleo y productividad en el Perú”. Documento de Trabajo 282. Pontificia Universidad Católica del Perú.

Ronconi, L. (2010). “Enforcement and Compliance with Labor Regulations”. Industrial and Labor Relations Review, 63(4): 719-736.

Ronconi, L. (2012). “Globalization, Domestic Institutions, and Enforcement of Labor Law: Evidence from Latin America”. Industrial Relations, 55(1): 89-105.

Scarpetta, S. and T. Tressel (2004). “Boosting productivity via innovation and adoption of new technologies: Any role for labor market institutions?”. Social Protection Discussion Paper Series 0406. The World Bank.

SEDLAC (2016). Socio-Economic Database for Latin America and the Caribbean (CEDLAS and The World Bank).

Viollaz, M. (2016). “Enforcement of Labor Market Regulations: Heterogenous Compliance and Adjustment Across Gender”. CEDLAS Working Paper 199.

Weil, D. (2008). “A Strategic Approach to Labor Inspection”. International Labor Review, 147(4): 349-375.