Courting Informal Workers: Exclusion, Forbearance, and the Left

The forthcoming article “Courting Informal Workers: Exclusion, Forbearance, and the Left” by Germán Feierherd is summarized by the author below. 

Sixty percent of workers around the world, according to recent estimates from the International Labour Organization, are informally employed. These workers do not pay payroll or income taxes and are not covered by social security or labor regulations, including those regulating maximum working hours, severance pay, and payed vacations. Do left-leaning governments with strong links to organized labor extend job security protections to these workers? This article shows that far from simply tolerating labor informality, local leftist governments in Brazil systematically weaken the enforcement of labor contracts and instead work to improve conditions for workers in the informal sector.  

This choice, I argue, reflects an “intra-class” dilemma that leftist parties face, especially in countries with rigid labor codes and residual welfare states. Whereas formal workers benefit from more rigorous labor laws, informal workers lose out when job security is strengthened. Heightened enforcement can potentially hurt the employment of less-skilled informal workers. Some workers may even wish to work informally, to continue receiving mean-tested benefits or to avoid paying costly contributions. Once in office, the Left partly mitigates this dilemma by slowing down the enforcement of labor contracts in contexts in which inspections threaten jobs (e.g., among small firms and when labor-market conditions are bad) and improving incomes and conditions for workers in the informal sector. 

To test this argument, I combine fine-grain data on labor inspections and informal-sector workers and organizations with qualitative interviews and the content analysis of policy documents. Using a regression-discontinuity design, I show that mayors from the Partido dos Trabalhadores (Workers’ Party, or PT) reduce the frequency of labor inspections among small firms and in municipalities that suffer upward shocks in unemployment. These mayors also increase the number of worker cooperatives where jobs remain informal, but laborers enjoy better working conditions. I also find suggestive evidence that by the end of a PT mayor’s term, the share of informal and cooperative workers increases.  

This article contributes to discussions about the political causes of pro-poor forbearance and persistent levels of informality in developing countries. The “intra-class” dilemma that I describe explains why politicians may choose at times to undermine regulation through forbearance instead of changing the law. This article should also interest scholars examining the politics of labor market adjustment. Around the world, leftist parties have been torn over advancing the interests of labor “insiders” by strengthening job security rules or upgrading the position of “outsiders” by embracing market promoting reforms. The forbearance strategy vis-à-vis informal workers that I identified allows left-leaning parties to balance in part the competing interests of a divided working class. 

About the Author: Germán Feierherd is Assistant Professor at Universidad de San Andrés. His research “Courting Informal Workers: Exclusion, Forbearance, and the Left” is now available in Early View and will appear in a forthcoming issue of the American Journal of Political Science.