Auditing and informality on Brazilian labor market

Abstract:

Since the 90s the government has developed a number of enforcement actions in the labor market in Brazil. This work aims to investigate the effects of enforcement of labor regulation on informality in Brazilian municipalities. For this, a database is used with information on establishments inspected by staff of the Department of Labour Inspection (SIT) in 786 municipalities of the country for the period 1996 to 1999. In addition, the methodological approach considers the fact that the choice of firms inspected depend on the mode of operation. The inspection decision depends on geographical factors, such as distance and economic density, and the availability of the number of tax for micro-region of the country. The results obtained following an instrumental variable approach, indicate a negative and significant effect of supervision over the contingent of informal workers in these municipalities.

Keywords:
enforcement of labor market; informality; labor regulation