Does the Enforcement of Labor Regulations Reduce Informality? The Case of Peru
DOI:
https://doi.org/10.60758/laer.v37i.567Keywords:
Labor informality, Enforcement , Regulation, Inspections, FinesAbstract
This article examines the effects of strengthened labor regulation enforcement on labor market outcomes in Peru from 2010 to 2019. In 2013, the Peruvian government established a national labor inspection agency, which was progressively rolled out nationwide. This reform led to a substantial increase in the frequency and severity of fines imposed on formal firms. Despite this heightened enforcement, our analysis using extended two-way fixed effects models finds no significant effects on overall employment levels. Moreover, there is no evidence of changes along either the intensive margin—informal employment within formal firms—or the extensive margin—the share of employment in informal firms. These findings suggest that increased enforcement of labor regulations did not lead to measurable shifts in labor informality or employment outcomes during this period.
References
Almeida, Rita and Pedro Carneiro (2012), “Enforcement of labor regulation and informality.” American Economic
Journal: Applied Economics, 4, 64–89.
Almeida, Rita K, Lourenc¸o S Paz, and Jennifer P Poole (2022), “Precarization or protection? The role of trade
and labour policies on informality.” The Journal of Development Studies, 58, 1416–1435.
Almeida, Rita K and Jennifer P Poole (2017), “Trade and labor reallocation with heterogeneous enforcement
of labor regulations.” Journal of Development Economics, 126, 154–166.
Bernal, Raquel and Marcela Eslava (2017), “Switching from Payroll Taxes to Corporate Income Taxes.”
Betcherman, Gordon (2015), “Labor market regulations: What do we know about their impacts in developing
countries?” The World Bank Research Observer, 30, 124–153.
Bhorat, Haroon, Ravi Kanbur, and Natasha Mayet (2012), “Estimating the Causal Effect of Enforcement
on Minimum Wage Compliance: The Case of S outh A frica.” Review of Development Economics, 16,
–623.
Borusyak, Kirill, Xavier Jaravel, and Jann Spiess (2024), “Revisiting Event-Study Designs: Robust and Efficient
Estimation.” The Review of Economic Studies, 91, 3253–3285.
Bossavie, Laurent, Ays¸enur Acar Erdo˘gan, and Mattia Makovec (2019), “The impact of the minimum wage
on firm destruction, employment and informality.” World Bank Policy Research Working Paper.
Callaway, Brantly and Pedro H.C. Sant’Anna (2021), “Difference-in-Differences with multiple time
periods.” Journal of Econometrics, 225, 200–230, URL https://linkinghub.elsevier.com/retrieve/pii/
S0304407620303948.
De Andrade, Gustavo Henrique, Miriam Bruhn, and David McKenzie (2016), “A helping hand or the long
arm of the law? Experimental evidence on what governments can do to formalize firms.” The World Bank
Economic Review, 30, 24–54.
de Chaisemartin, Cl´ement and Xavier D’Haultfoeuille (2023), “Two-Way Fixed Effects and Differences-in-
Differences with Heterogeneous Treatment Effects: A Survey.” The Econometrics Journal, 26, C1–C30.
de Chaisemartin, Cl´ement and Xavier D’Haultfoeuille (2020), “Two-Way Fixed Effects Estimators with Heterogeneous
Treatment Effects.” American Economic Review, 110, 2964–2996.
D´ıaz, Juan Jos´e, Juan Chacaltana, Iamele P Rigolini, and Claudia Ruiz Ortega (2018), “Pathways to formalization:
going beyond the formality dichotomy–the case of Peru.” World Bank Policy Research Working
Paper.
Gardner, John (2022), “Two-Stage Differences in Differences.”, URL https://arxiv.org/abs/2207.05943.Working
Paper.
Goodman-Bacon, Andrew (2021), “Difference-in-differences with variation in treatment timing.” Journal of
econometrics, 225, 254–277.
INEI (2019), “Producci´on y empleo informal en el Per´u.” Cuenta Sat´elite de la Econom´ıa Informal 2007-
INEI (2020), Producci´on y Empleo Informal en el Per´u: Cuenta Sat´elite de la Econom´ıa Informal 2007-
Instituto Nacional de Estad´ıstica e Inform´atica, Lima, URL dehttps://www.inei.gob.pe/media/
MenuRecursivo/publicaciones digitales/Est/Lib1764/libro.pdf.
Jessen, Jonas and Jochen Kluve (2021), “The effectiveness of interventions to reduce informality in low-and
middle-income countries.” World Development, 138, 105256.
Kahn, Lawrence M (2007), “The impact of employment protection mandates on demographic temporary
employment patterns: International microeconomic evidence.” The Economic Journal, 117, F333–F356.
Loayza, Norman (2018), “Informality: why is it so widespread and how can it be reduced?” World Bank
Research and Policy Briefs.
Meghir, Costas, Renata Narita, and Jean-Marc Robin (2015), “Wages and informality in developing countries.”
American Economic Review, 105, 1509–1546.
Monteiro, Joana CM and Juliano J Assunc¸ ˜ao (2012), “Coming out of the shadows? Estimating the impact of
bureaucracy simplification and tax cut on formality in Brazilian microenterprises.” Journal of Development
economics, 99, 105–115.
Ohnsorge, Franziska and Shu Yu (2022), The long shadow of informality: Challenges and policies. TheWorld
Bank, Washington.
Perry, Guillermo, William Maloney, Omar Arias, Pablo Fajnzylber, Andrew Mason, and Jaime Saavedra-
Chanduvi (2007), Informality: Exit and Exclusion. World Bank Latin American and Caribbean Studies,
The World Bank, Washington.
Ronconi, Lucas and Jorge Colina (2011), “Simplification of labor registration in Argentina: Achievements
and pending issues.” Technical report, IDB Working Paper Series.
Roth, Jonathan, Pedro H.C. Sant’Anna, Alyssa Bilinski, and John Poe (2023), “What’s Trending in
Difference-in-Differences? A Synthesis of the Recent Econometrics Literature.” Journal of Econometrics,
, 2218–2244.
Sun, Liyang and Sarah Abraham (2021), “Estimating Dynamic Treatment Effects in Event Studies with Heterogeneous
Treatment Effects.” Journal of Econometrics, 225, 175–199.
SUNAFIL (2019), “Informe Anual de Inspecci´on del Trabajo 2019.” Informes Anuales.
SUNAFIL (2022), Plan Anual de Inspecci´on del Trabajo. Superintendencia Nacional de Fiscalizaci´on Laboral.
Ulyssea, Gabriel (2018), “Firms, Informality, and Development: Theory and Evidence from Brazil.” American
Economic Review, 108, 2015–2047.
Viollaz, Mariana (2018a), “Are labour inspections effective when labour regulations vary according to the size
of the firm? Evidence from Peru.” International Labour Review, 157, 213–242.
Viollaz, Mariana (2018b), “Enforcement of labor market regulations: heterogeneous compliance and adjustment
across gender.” IZA Journal of Labor Policy, 7, 2.
Wooldridge, Jeffrey M. (2021a), “Two-Way Fixed Effects, the Two-Way Mundlak Regression, and
Difference-in-Differences Estimators.”, URL http://dx.doi.org/10.2139/ssrn.3906345. Available at SSRN:
https://ssrn.com/abstract=3906345.
Wooldridge, Jeffrey M. (2021b), “Two-Way Fixed Effects, the Two-Way Mundlak Regression, and
Difference-in-Differences Estimators.” The Econometrics Journal, 24, C1–C31.
Downloads
Published
Issue
Section
License
Copyright (c) 2026 Maria Florencia Pinto, Yulia Valdivia Rivera, Hernán Winkler
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
LAER Copyright and License
Authors submitting articles to Latin American Economic Review (LAER), automatically grant this journal a license to publish. Copyright of all published material remains with the authors, who can reuse it in future work without needing to make reference to LAER. Similarly, any other contribution of material to the website (for example text, photographs, graphics, video or audio) automatically grants us a right to publish. Copyright, however, remains with the author(s).
Authors release their work under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License (CC BY-NC-ND 4.0). This license allows anyone to copy, distribute and transmit the work, provided the use has no derivatives, is non-commercial and appropriate credit to the author(s) is given. (If you remix, transform, or build upon the material, you may not distribute the modified material.)
A human-readable summary of the licence:
https://creativecommons.org/licenses/by-nc-nd/4.0/
Full legal text:
