1. PROMOTING SUSTAINABLE COMPLIANCE : STYLES OF LABOR INSPECTION AND COMPLIANCE OUTCOMES IN BRAZIL Roberto Pires Massachusetts Institute of Technology – DUSP/MIT rpires@mit.edu Just Supply Chains May 16-17, 2008 Stanford University

2. National Labor Regulations: reforming vs. implementing the law Brazil: heavily regulated labor market, textbook example of how labor regulation negatively affects economic development External and internal pressures for legal reform, but no significant change in the last 20 years Nevertheless, working conditions have improved significantly in many sectors ( even under modest and stable economic growth – 2.5% ): Graph 1 – The Net Flow of Registered Workers by Five ‐ Year Period (1985 ‐ 2005) Source: Almeida, 2007

3. The way regulation is implemented (who? And how?): styles, strategies, practices… Local level analysis: understand the variation in inspection practices (patterns of behavior) and how they are causally linked to compliance outcomes Fieldwork (6 months): 24 cases, different sectors, different states… to isolate the effect of practices… National Labor Regulations: reforming vs. implementing the law

4. Compliance Outcomes 1.Non-compliance: The intervention of inspectors does not result in significant increase in firms’ compliance with the law. 2.Compliance: The intervention is successful at immediately bringing firms to compliance with the law, but does not create favorable conditions for firms to remain in compliance. Compliance leads to decreasing competitiveness and productivity. 3.Sustainable Compliance: Labor inspectors not only bring firms into compliance but also create legal and/or technical solutions which work as positive incentives for firms to remain in compliance with the law. Compliance enhances firms’ competitiveness and productivity.

5. …linking inspection practices to compliance outcomes Variation in styles/practices of inspection: Punishment Education / assistance Combination of both: –Sanctions are necessary but not sufficient to promote positive change (i.e. upgrading); –Technical/legal assistance is not enough to signal the need for change in business practices.

6. Examples / Cases auto-parts industry - Belo Horizonte, MG –Negative involvement of main company/buyer petrochemical industry – Camaçari, BA –Active involvement of main companies/buyers Other cases involving wage and hour regulations…

7. Conclusion Understanding how inspection practices affect business operation is useful for both state and non-state monitoring/inspection… Problem-solving dialogues between regulators and regulated: combination of coercion and assistance

9. Health and Safety Inspection Numbers Number ofInspections Irregularities Corrected through Inspections Interdictions and Debarments imposed Years1999-20022003-2006 % growth1999-20022003-2006 % growth1999-20022003-2006 % growth Total 555.177594.75171.860.7993.047.192644.44812.244175 Agriculture 21.43933.5885769.742167.312140155456194 Commerce & Services 196.091214.93610476.644828.288741.4041.80328 Construction 109.162112.2263501.369796.287596526.311868 Manufacturing 140.352137.385-2550.302826.418501.6182.84176 Source: table compiled by author; data from SFIT/MTE.