Article of the Week
When formal jobs mean fewer jobs
Mexico’s social-security inspectors cranked up payroll audits as part of a worker formalisation drive. And compliance duly ticked up. So far, so standard, formalisation = good, pats on the backs all round. But according to the study, the typical firm didn’t just formalise their workers. They also responded by trimming headcount and shaving wages…
Formalisation of the labour market is often a stated developmental goal. But this study says there might be more to the story.
https://voxdev.org/topic/labour-markets/challenges-reducing-informal-employment-evidence-mexico
Basic economics: if formalization raises employment costs, employers will cut workers.
Maybe it's best to wait until a lot of formalization happens spontaneously. Then you can start to impose a standard, but not before. Appropriate standardization can solve coordination problems and promote interoperability. But premature or inappropriate standards get in the way and do harm.