Flexible labor regulations and informality in Egypt

Abstract EN

Do flexible labor market regulations reduce informal employment? This paper examines the effects of changes in labor regulations on the incidence of formal employment.

Using the case of Egypt, we study the effects of the introduction of more flexible labor regulations in 2003, allowing employers to fire workers, on the incidence of formal employment.

The change in the labor law provides us with a natural experiment, which can be used to evaluate the impact of such a policy.

The findings show that the change in labor law had a positive impact on the incidence of contracted jobs.

Thus, our findings support the hypothesis that less rigid labor market regulations increase formal employment.

JEL Classification : J2, J4