JID:YJCEC AID:2117 /FLA [m3G; v 1.72; Prn:5/11/2008; 13:22] P.1 (1-15)

Abstract not found

The global economy continues to weather the most difficult climate in generations.What began as a financial crisis in the United States and the United Kingdom quickly turned into the largest global recession in decades.World GDP is expected to contract by a record 2.5 percent in 2009 as the financial crisis continues to spill over into the real economy,1 engendering massive declines in consumer demand, rising unemployment, and mounting protectionist pressures worldwide. Although the developing world at first seemed to be spared from the fallout of this crisis, many countries are now facing slumping demand for their export products; this decline is coupled with falling commodity prices and significant reductions in foreign investment and remittances. Moreover, a global liquidity shortage has

The Inter-American Development Bank Discussion Papers and Presentations are documents prepared by both Bank and non-Bank personnel as supporting materials for events and are often produced on an expedited publication schedule without formal editing or review. The information and opinions presented in these publications are entirely those of the author(s), and no endorsement by the Inter-American Development Bank, its Board of Executive Directors, or the countries they represent is expressed or implied.

sagepub.co.uk/journalsPermissions.nav

sagepub.co.uk/journalsPermissions.nav

Any opinions expressed here are those of the author(s) and not those of IZA. Research published in this series may include views on policy, but the institute itself takes no institutional policy positions. The IZA research network is committed to the IZA Guiding Principles of Research Integrity. The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit organization supported by Deutsche Post Foundation. The center is associated with the University of Bonn and offers a stimulating research environment through its international network, workshops and conferences, data service, project support, research visits and doctoral program. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. IZA Discussion Papers often represent preliminary work and are circulated to encourage discussion.

(ii) development of

This paper investigates how enforcement of labor regulation affects firm size and other firm characteristics in Brazil. We explore firm level data on employment, capital, and output, city level data for economic city characteristics and new administrative data measuring enforcement of regulation at the city level. Since enforcement may be endogenous, we instrument this variable with the distance between the city where the firm is located and surrounding enforcement offices, while controlling for a very rich set of city characteristics (such as past levels of informality in the city). We present suggestive evidence of the validity of this instrument. We find that stricter enforcement of labor regulation constrains firm size.

This paper investigates how enforcement of labor regulation affects firm size and other firm characteristics in Brazil. We explore firm level data on employment, capital, and output, city level data for economic city characteristics and new administrative data measuring enforcement of regulation at the city level. Since enforcement may be endogenous, we instrument this variable with the distance between the city where the firm is located and surrounding enforcement offices, while controlling for a very rich set of city characteristics (such as past levels of informality in the city). We present suggestive evidence of the validity of this instrument. We find that stricter enforcement of labor regulation constrains firm size, and leads to higher unemployment.