Large Firms and the Intensive Margin of Labor Informality Evidence from an Enforcement Intervention in Peru

Last registered on December 20, 2024

Pre-Trial

Trial Information

General Information

Title
Large Firms and the Intensive Margin of Labor Informality Evidence from an Enforcement Intervention in Peru
RCT ID
AEARCTR-0015026
Initial registration date
December 13, 2024

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published
December 20, 2024, 12:22 PM EST

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Locations

Region

Primary Investigator

Affiliation
CEDLAS-FCE-UNLP

Other Primary Investigator(s)

PI Affiliation
IDB

Additional Trial Information

Status
Completed
Start date
2017-10-01
End date
2018-12-31
Secondary IDs
Prior work
This trial is based on or builds upon one or more prior RCTs.
Abstract
In developing countries, informal labor is not only employed by illegal or unregistered firms but also by legal firms that hire workers informally, known as the intensive margin of labor informality. Reducing this type of work may have ambiguous effects on formal employment, depending on factors such as firm size and productivity. In collaboration with Peru’s labor inspection authority, we conducted a randomized mailing experiment targeting large firms with a high propensity for employing workers informally. The authority sent letters with either deterrence messages detailing fines for non-compliance or social norms messages highlighting the positive impacts of formality. We analyzed the impact of this intervention on formal employment levels over the following two years using monthly administrative data. The treated firms, particularly those in the deterrence treatment arm and larger firms, increased their formal employment levels. However, these increases followed a seasonal pattern coinciding with the high labor demand during the touristic season, suggesting that prior to the intervention, firms were employing temporary workers informally. The higher perceived cost of non-compliance led them to formalize some of these workers. The informal hiring of seasonal workers by these firms appears to have been motivated by basic tax evasion, and the absence of a negative effect on firm-level employment indicates that the firms were exploiting rents from low enforcement of regulations.
External Link(s)

Registration Citation

Citation
Bosch, Mariano and Guillermo Cruces. 2024. "Large Firms and the Intensive Margin of Labor Informality Evidence from an Enforcement Intervention in Peru." AEA RCT Registry. December 20. https://doi.org/10.1257/rct.15026-1.0
Experimental Details

Interventions

Intervention(s)
In collaboration with Peru’s labor inspection authority, we conducted a randomized mailing experiment targeting large firms with a high propensity for employing workers informally. The authority sent letters with either deterrence messages detailing fines for non-compliance or social norms messages highlighting the positive impacts of formality.
Intervention (Hidden)
Intervention Start Date
2017-10-01
Intervention End Date
2017-12-31

Primary Outcomes

Primary Outcomes (end points)
Firms formal employment levels
Primary Outcomes (explanation)

Secondary Outcomes

Secondary Outcomes (end points)
Secondary Outcomes (explanation)

Experimental Design

Experimental Design
In collaboration with Peru’s labor inspection authority, we conducted a randomized mailing experiment targeting large firms with a high propensity for employing workers informally. The authority sent letters with either deterrence messages detailing fines for non-compliance or social norms messages highlighting the positive impacts of formality. We analyzed the impact of this intervention on formal employment levels over the following two years using monthly administrative data.
Experimental Design Details
Randomization Method
Randomization done in office by a computer
Randomization Unit
The randomization unit is firms with 50 or more employees deemed high risk by the authorities.
Was the treatment clustered?
No

Experiment Characteristics

Sample size: planned number of clusters
1045 firms
Sample size: planned number of observations
1033
Sample size (or number of clusters) by treatment arms
348 in deterrence letter, 349 in social norms letter, 348 no letter
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
IRB

Institutional Review Boards (IRBs)

IRB Name
IRB Approval Date
IRB Approval Number

Post-Trial

Post Trial Information

Study Withdrawal

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Intervention

Is the intervention completed?
No
Data Collection Complete
Data Publication

Data Publication

Is public data available?
No

Program Files

Program Files
Reports, Papers & Other Materials

Relevant Paper(s)

Reports & Other Materials