In Simple Words
Think of speed limits on a highway. If drivers know there are no police cruisers monitoring the road, many will speed without fear. Stationing physical police cruisers along the highway dramatically increases the visible probability of getting caught, forcing drivers to slow down and follow the law.
Informal firms in Belo Horizonte
- No study intervention
- Group used for comparison
- Assigned municipal inspection
- More firms registered
Randomized assignment, not actual inspection receipt. Small registration gain; information, free-cost assistance and neighbour-inspection arms omitted.
See source →Study conditions — de Andrade and colleagues, IZA DP7402 ↗Research question
Informal firms gain an unfair cost advantage over tax-paying formal businesses because low enforcement levels reduce the perceived likelihood and financial penalty of operating informally.
Participants
Informal firms and workers in Brazil and Mexico.
Study Design
Randomized Controlled Trial and quasi-experimental enforcement evaluation.
Results
In-person labor inspections increased worker formalization in Brazil and Mexico, but increased worker dismissal rates in Mexico and reduced overall job creation due to higher informal employment costs.
Takeaway
Conduct targeted physical in-person labor inspections to increase the perceived risk and cost of non-compliance among informal employers.
Source and citation
See source →Evidence in Labor Market Policies and Implications for Brazil: Informality
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Read alongside the research
Plain-English glossary
Original explanations, informed by the references below. Examples are illustrations, not data from the studies above. The research text stays unchanged.
- Randomized controlled trial
A study that uses chance, like drawing lots, to decide who receives each option being compared. Researchers compare the groups’ outcomes to estimate the effect of those options.
ExampleA lottery assigns volunteers to a training programme or a comparison group. Researchers then compare their outcomes.
GET-IT glossary · Randomized study ↗Read more about randomized controlled trial →