Are labour inspections effective when labour regulations vary according to the size of the firm? Evidence from Peru

Abstract

This article analyses the impact of enforcement of four labour standards (pension system enrolment, minimum wage, maximum weekly working hours and written employment contract) on compliance in Peru, where labour regulations and penalties vary according to firm size. The author uses household survey data to analyse a factor not previously studied – adjustment by firms through downsizing to benefit from lower fines and less stringent regulations. The empirical findings indicate that enforcement efforts have little effect on either the degree of compliance or the size of firms.