Enforcement matters: The effective regulation of labour

Abstract

The distinction between de jure and de facto regulation is well understood in theory, but has rarely been applied to cross-country empirical work on the impact of labour regulation on labour market outcomes for lack of data. Policy debate has been based on measures of stringency of law, suggesting a negative correlation between labour regulation and labour market outcomes. This article provides new cross-country measures of labour law enforcement and evidence of a negative correlation between stringency and intensity of enforcement. Previous results concerning the consequences of labour regulation and the legal origins theory no longer hold when a measure of effective labour regulation is used.