Labor standards and informal employment in Latin America

Abstract

This paper addresses the hypothesis that higher labor standards-in particular freedom of association and collective bargaining rights-and higher wages in the formal sector reduce employment in that sector and thereby contribute to the informalization of employment. This issue is explored using panel data on specific categories of formal and informal employment for 14 Latin American countries in the 1990s, evaluating both crosscountry and time-series variation. Our most robust finding is that countries with higher labor standards tend to have higher shares of formal employment and lower shares of informal employment. © 2004 Elsevier Ltd. All rights reserved.