Carneiro, PedroAlmeida, Rita2012-03-192012-03-192009-11-01https://hdl.handle.net/10986/4311This paper studies the effect of enforcing labor regulation in an economy with a dual labor market. The analysis uses data from Brazil, a country with a large informal sector and strict labor law, where enforcement affects mainly the degree of compliance with mandated benefits (severance pay and health and safety conditions) in the formal sector, and the registration of informal workers. The authors find that stricter enforcement leads to higher unemployment but lower income inequality. They also show that, at the top of the formal wage distribution, workers bear the cost of mandated benefits by receiving lower wages. Wage rigidity (due, say, to the minimum wage) prevents this downward adjustment at the bottom of the income distribution. As a result, formal sector jobs at the bottom of the wage distribution become more attractive, inducing the low-skilled self-employed to search for formal jobs.CC BY 3.0 IGOACCESS TO MARKETSACCESSIBILITYACCOUNTINGAGGREGATE PRODUCTIVITYAGGREGATE PRODUCTIVITY GROWTHAGRICULTUREASYMMETRIC INFORMATIONAVERAGE WAGESBARGAININGBARGAINING POWERCHILD LABORCITY TRANSPORTATIONCOMPARATIVE ECONOMICSCOMPENSATION PACKAGECOMPETITIVE MODELCOMPETITIVE MODELSCONTRACT LABORCREATIVE DESTRUCTIONDEMAND CURVEDEREGULATIONDEVELOPMENT ECONOMICSDISMISSALDISMISSED WORKERDOMESTIC WORKERSDUAL ECONOMYECONOMETRIC MODELSECONOMIC EFFICIENCYECONOMIC GROWTHECONOMIC PERFORMANCEECONOMIC RESEARCHELASTICITIESEMPLOYEEEMPLOYMENTEMPLOYMENT HISTORYEMPLOYMENT STATUSEQUATIONSEQUILIBRIUM WAGESEXOGENOUS VARIABLEEXPECTED WAGEEXPENDITUREFIRING COSTSFIRM PERFORMANCEFIRM SIZEGDPGDP PER CAPITAGENERAL EQUILIBRIUMHIGH UNEMPLOYMENTINCOMEINCOME DISTRIBUTIONINCOME INEQUALITYINCOME TAXINFORMAL EMPLOYMENTINFORMAL LABOR MARKETSINFORMAL SECTORINFORMAL SECTOR WORKERSINSPECTIONINTERNATIONAL TRADEINVOLUNTARY UNEMPLOYMENTJOB SEARCHJOB SEARCH PROCESSJOB SECURITYJOBSKEYNESIAN UNEMPLOYMENTLABOR CONTRACTSLABOR COSTSLABOR DEMANDLABOR ECONOMICSLABOR FORCELABOR LAWLABOR LAWSLABOR MARKETLABOR MARKET FLEXIBILITYLABOR MARKET INDICATORSLABOR MARKET INSTITUTIONSLABOR MARKET OUTCOMESLABOR MARKET PERFORMANCELABOR MARKET POLICIESLABOR MARKET POLICYLABOR MARKET REFORMLABOR MARKET REGULATIONLABOR MARKET REGULATIONSLABOR MARKET VARIABLESLABOR MARKETSLABOR OFFICELABOR OFFICESLABOR REGULATIONLABOR REGULATIONSLABOR SUPPLYLAYOFFLDCSLOCAL LABOR OFFICEMANDATED BENEFITSMARKET THEORYMARKET WAGEMATERNITY BENEFITSMATERNITY LEAVEMINIMUM WAGEMINIMUM WAGESMOBILITYMONOPSONYMONOPSONY POWERMOTIVATIONPAID MATERNITYPAYROLL TAXESPER CAPITA INCOMEPOLICEPOLITICAL ECONOMYPRESENT EVIDENCEPREVIOUS SECTIONRENT SEEKINGRETIREMENTRISK NEUTRALROADROAD INFRASTRUCTUREROADSSAFETYSANITATIONSELF EMPLOYEDSEVERANCE PAYSEVERANCE PAYMENTSEVERANCE PAYMENTSSKILLED WORKERSSTRICTER ENFORCEMENTSUBSTITUTESSUPPLY CURVESUPPLY EQUATIONSTAXTAX REVENUESTAXATIONTOP MANAGEMENTTOTAL EMPLOYMENTTOTAL LABOR FORCETRADE LIBERALIZATIONTRANSPARENCYTRANSPORTTRANSPORTATION COSTTRANSPORTATION COSTSTRAVEL BY CARTRAVEL DISTANCETRAVEL DISTANCESTRAVEL TIMETRAVEL TIMESTRUETURNOVERUNEMPLOYEDUNEMPLOYMENTUNEMPLOYMENT INSURANCEUNEMPLOYMENT RATEVALUATIONWAGE DIFFERENTIALSWAGE DISTRIBUTIONWAGE EARNERWAGE INCREASESWAGE INEQUALITYWAGE PREMIUMWAGE RIGIDITIESWAGE RIGIDITYWORKERWORKER HETEROGENEITYWORKERSYOUNG WORKERSWorld Bank10.1596/1813-9450-5119