Measuring effective regulation all over the world: recent advances and challenges ahead

RONCONI, LUCAS

Conferencia; Enforcing EU Labour Law (and beyond); 2022

ETUI

More than half of private sector employees in low-and-middle income countries (LMIC) do not receive the benefits to which they are legally entitled because of employer noncompliance. An obvious policy level is government enforcement, and despite its importance, little is known about its performance. This paper takes stock of recent efforts in social science to conceptualize and measure labor enforcement. In particular, I exploit the dataset I constructed (see Kanbur and Ronconi, 2018) that provides measures of labor inspection resources and activities, of fines, and of the performance of the judiciary for almost all countries in the world (i.e., 197 countries). Several stylized facts emerge from the data and the empirical literature: 1) Countries with less government enforcement tend to have higher levels of labor informality. 2) Increasing enforcement produces more compliance with little job destruction, although there is substantial heterogeneity across countries. 3) Countries with more protective labor codes tend to enforce less. 4) Countries that become more open to trade, also tend to enforce less. However, trade agreements with special clauses protecting workers can promote higher labor enforcement. 5) Inspection agencies in LMIC tend to focus their efforts on formal firms, leaving informal firms out of the radar which implies that the most vulnerable workers are usually excluded. 6) The ideology of the government shapes labor enforcement, wherein left-leaning governments devote more resources to inspection. 7) Autonomous and professional bureaucracies do more labor enforcement presumably because they internalize the long-run benefits of enforcing the law. The paper concludes presenting the challenges ahead and discussing potential solutions.