Are labour inspections effective when labour regulations vary according to the size of the firm? Evidence from Peru

Abstract

This article analyses the impact of enforcement of four labour standards (pension system enrolment, minimum wage, maximum weekly working hours and written employment contract) on compliance in Peru, where labour regulations and penalties vary according to firm size. The author uses household survey data to analyse a factor not previously studied – adjustment by firms through downsizing to benefit from lower fines and less stringent regulations. The empirical findings indicate that enforcement efforts have little effect on either the degree of compliance or the size of firms.

Do labor inspections make a difference? An analysis of establishments in Brazil

“…However, strict labor regulations on paper are not guaranteed to be enforced, resulting in unequal competition conditions and less security for workers LAGE, 2005;BASU;CHAU;KANBUR, 2010;RONCONI, 2016;VIOLLAZ, 2018). In terms of generating incentives to adequacy (through the intention of punishment violators) and aiming to narrow the gap between the de jure and the de facto one, the main public policy is inspection (PIORE;SCHRANK, 2008;RONCONI, 2018).…”

“…His main conclusion is that the firms' propensity to evade regulations is inversely related to the probability of being caught multiplied by the expected fine. In this way, increased enforcement would increase compliance because it would increase the likelihood of being inspected and fined (VIOLLAZ, 2018).…”

“…There are not many empirical studies about the effects of inspections on compliance yet, especially about the Brazilian labor market. Using the instrumental variables method 1 and data at the region/city/province level, the evidence suggests little correlation between increased inspections and labor regulation compliance in Argentina and Peru (RONCONI, 2010;VIOLLAZ, 2018) and no correlation with minimum wage compliance in South Africa (BHORAT; KANBUR; MAYET, 2012).…”

“…After all, if society does not adapt to changes in regulations, the effects will be small. Recent studies that evaluate the impact of an increase in inspection intensity show a rise in compliance with labor law in Brazil, Argentina and Peru (ALMEIDA;NARITA, 2013;RONCONI, 2010;VIOLLAZ, 2018). In South Africa, results indicate a null effect of raise enforcement on compliance with minimum wage law (BHORAT; KANBUR; MAYET, 2012).…”

“…Ronconi (2010) uses electoral years as an instrumental variable because it would affect enforcement agencies but has no direct effect on firms' propensities to comply with labor regulations. Bhorat,Kanbur and Mayet (2012) use the number of non-inspectors as enforcement instruments, that is, the number of workers in the labor inspection sectors who do not participate in inspection effectively Viollaz (2018). proposes measurement of the "arrival cost"of labor inspector as an instrument to enforcement.…”