Peru, 2002-2012: Growth, structural change and formalization

In a dramatic change of trend, labour formalization took place in Peru in the period covered by this study. The context was one of economic growth accompanied by a labour market reform that created a special regime for micro and small enterprises, thereby reducing employment costs, and introduced improvements in workplace inspections. A panel of subnational regions is used to analyse the role played by these factors in the formalization process. In the first place, this study confirms that the composition of growth matters to formalization. A combined analysis of economic factors (growth and sectoral growth) and recent institutional changes shows that the former accounted for the bulk of formalization in the period analysed and that growth in labour-intensive sectors adds explanatory power, while the institutional changes, far-reaching though they were, did not have a significant effect.