Evidence in Labor Market Policies and Implications for Brazil: Informality

Original source

André Mancha; Filipe Cavalcanti; Laísa Rachter; Livia Gouvêa; Luiz Felipe Fontes

secondary evidence synthesis · JOI Brazil / Inter-American Development Bank

Full source notice

Copyright © 2025 Inter-American Development Bank ("IDB"). This work is subject to a Creative Commons license CC BY 3.0 IGO (https://creativecommons.org/licenses/by/3.0/igo/legalcode). The terms and conditions indicated in the URL link must be met and the respective recognition must be granted to the IDB. Further to section 8 of the above license, any mediation relating to disputes arising under such license shall be conducted in accordance with the WIPO Mediation Rules. Any dispute related to the use of the works of the IDB that cannot be settled amicably shall be submitted to arbitration pursuant to the United Nations Commission on International Trade Law (UNCITRAL) rules. The use of the IDB's name for any purpose other than for attribution, and the use of IDB's logo shall be subject to a separate written license agreement between the IDB and the user and is not authorized as part of this license. Note that the URL link includes terms and conditions that are an integral part of this license.

Used in these cards

Direct Monetary Registration Grants

"In Sri Lanka, researchers found that providing a monetary transfer to informal firms (equivalent to one or two months of their median profit) in exchange for registration led to greater formalization"

Business Entry Simplification (Salaried-to-Entrepreneur Shift)

"The results suggest that the reform increased the number of registered companies. This increase resulted from former salaried workers deciding to start their businesses. After the reform, pre-existing informal business owners were no more likely to register their companies."

Flexible Formal Work Schedule Arrangements

"Therefore, offering more flexible formal jobs, with the option of adjusting working hours and remote working, could encourage women to leave the informal sector."

Gendered Household Influence and Caregiving Barriers

"In Benin and Malawi, researchers found that women formalized their businesses less or did not formalize them after programs to encourage formalization... women face the challenge of balancing their entrepreneurial activities with domestic responsibilities, which reduces their likelihood of expanding their businesses."

In-Person Labor Inspection and Enforcement

"In Brazil, researchers found that in-person inspections increased formalization."

Individual Microentrepreneur Program (MEI) Tax Simplification

"Two quasi-experimental evaluations suggest that the changes introduced by this program led to an increase in formalization between 2009 and 2015."

Personalized In-Person Formalization Assistance

"In Brazil, informal entrepreneurs in Rio de Janeiro who received in-person individualized assistance increased their formalization and tax compliance after the intervention. However, providing the same information and assistance via instant messaging did not generate any impact on these measures."

Post-Formalization Registration Non-Renewal (Formalization Churn)

"However, this effect was not maintained over time, mainly because formalized firms decided not to renew their registration, which suggests that firms did not benefit from leaving informality."

Formal Schooling Expansion as Formalization Engine

"Using a theoretical model calibrated with real data, they argue that the increase in schooling was the primary mechanism for increasing formalization in this period."

"The results suggest that this policy disincentivized the beneficiaries of the program from formalizing their employment in the labor market."

Subsidized Vocational Job Training

"In Brazil and Peru, training programs increased the likelihood of their participants working formally, which indicates that these programs can create a pathway for increasing the quality of employment of their participants"

Targeted High-Productivity Firm Formalization

"In Brazil, researchers have shown that the average effect of a formalization incentive program was driven entirely by high-income entrepreneurs (Rocha et al., 2018). The authors argue that this result is consistent with the view that smaller, low-productivity firms benefit little from formalizing."

Written Threat Notification Enforcement ('Stick Treatment')

"In Bangladesh, researchers randomized informal firms to receive a notification that they need to be registered and about the consequences of not concluding their registration with the competent authority. They found that this notification increased the proportion of registered firms"

Uncoupling Tax and Business Registration Obligations

"In Malawi, researchers found that companies demonstrated a higher demand for business registration when separated from tax obligations"