This paper studies the effects of the minimum wage on the life cycle of firms. We first build a tractable model where heterogeneous firms have labor market power, invest in innovation, and choose formal or informal sectors. The model predicts that a minimum wage hike not only shrinks young firms but also lowers incentives to innovate, resulting in lower life cycle growth. We then test the model's predictions using Brazilian administrative data leveraging the variation in exposure across establishments and municipalities to the large increase in the minimum wage between 1999 and 2010. At the establishment level, an increase in the minimum wage: (i) decreases the growth rates of small and young establishments and (ii) increases the growth rates of old and large establishments. When analyzing exposed municipalities, we observe an increase in the earnings of workers in both the formal and informal sectors, as well as informal employment.

This paper studies the effect of prohibiting the use of cash for wage disbursements on labor markets in developing countries. We study a reform in Uruguay that mandated wage payments to be disbursed using only electronic methods. Using a difference-in-differences approach based on sector-level cash intensity prior to the reform, our results indicate that firms in high cash intensity sectors are significantly more likely to discontinue formal activities post-reform. Active firms show a slight reduction in the number of employees and an increase in reported wages. These results are driven by low productivity firms. Complementary results using survey data indicate an increase in informal employment and a decrease in collusive underreporting of earnings partially explain these results. Overall, results suggest that, while eliminating cash for wage payments enhances tax compliance among formal workers, it may also shift some economic activity into full informality.

Mobilizing domestic revenues is crucial for governments. However, in settings with low enforcement, this can be a challenging task. Fostering voluntary tax compliance among citizens is a promising approach for countries with limited state capacity. In this study, we examine public goods messages as a means to increase citizens' voluntary tax compliance. Specifically, we focus on the role of the message sender, comparing public goods messages transmitted by the tax authority to those transmitted by a religious leader. In a lab experiment conducted among market traders in Tanzania, we find that public goods messages conveyed by a religious leader are more effective than those conveyed by the tax authority. Nevertheless, governments must exercise caution when utilizing public goods messages, as in certain contexts, these messages can backfire, resulting in lower tax compliance. This effect is particularly pronounced when the sender of the message is a religious leader.

This paper investigates a neglected aspect of informality in Latin America—Payments Under the Table (PUT), where registered firms make off-the-books salary payments. We conduct the first multi-country large-scale survey on this topic, covering Brazil, Argentina, Mexico, Colombia, and Chile, being representative of over two-thirds of Latin America's population. Out of the more than 5,000 formal workers surveyed, our results indicate that 16% of them receive some part of their compensation under the table. Among PUT receivers, on average 24% of their labor earnings are paid off the books. We then provide insights into the mechanics and motivations behind PUT, exploring its impact on talent misallocation. The research highlights PUT as a potential driver for growth in developing countries, enabling less productive firms to retain skilled workers. By shedding light on this overlooked dimension, the study contributes to a more comprehensive understanding of informality's role in Latin American economic development.