In 1991, Brazil passed a landmark Quota Law intended to promote the hiring of people with disabilities and overcome some of the obstacles they face in the labor market. But the law, calling on companies employing more than 100 workers to allocate at least 2% of jobs to people with disabilities, came up short. It lacked compliance or enforcement, and by 2009 less than one-third of the companies obliged to comply were doing so.
That changed in 2012 when the government introduced stricter inspection procedures that led to a 7% increase in the hiring of people with disabilities in companies subject to the quota.
Beyond Fines
As we show in a recent study, the impact of beefed up enforcement extended far beyond inspected and fined firms. As word spread, firms not yet complying with the law and subject to possible sanctions began to re-evaluate their risk of punishment. As a result, a spillover effect rippled through business networks, causing compliance that was much greater than the impact of the fines themselves.
As of 2020, 88 million people in Latin America and the Caribbean, or about 15% of the population, was living with a disability. These people face real disadvantages in labor market outcomes, with an average difference or gap of 18.5 percentage points among 25-34 year-olds in eight national censuses in Latin America and the Caribbean.
Our research on the “enforcement spillover” effect has important implications for countries intent on implementing diversity and inclusion policies. It also has implications for the enforcement of other types of regulation.
The Influence of Networks on Compliance
Our research examined how the fining of firms for non-compliance influenced other non-compliant firms that had not yet been fined through different networks. We found that when a company received a fine for violating the disability quota, other nearby (neighbor network) firms increased their hiring of workers with disabilities by 7.4%. Firms with the same owner (owner network) as a fined firm boosted their hiring of workers with disabilities by 7% and companies connected through HR staff did so by 4.6%.
The “enforcement spillover” effect was not just significant; it had an impact twice as large as that of the fines themselves. In other words, for every worker with a disability hired as a result of a fine, two more were hired by other companies that learned about increased enforcement through their networks.
What does this mean for public policy? It means that the impact of enforcement efforts may be much larger when taking into account its spillover effects. As a result, publicizing enforcement actions through business networks can make a difference. So can strategically targeted inspections in areas with high concentrations of firms
Disability Employment Quotas and Other Regulations
In the United States, research shows that publicizing firms’ health violations leads other firms to comply with health regulations. While their weaker enforcement capacity and larger gap between de jure and de facto laws might put the relevance of such research to developing countries in doubt, our study shows that enforcement spillovers may take place in developing countries as well. Facilitating the flow of information about enforcement through different networks can yield highly positive results. Brazil’s 2012 change in the approach to hiring enforcement did not result in firm closures, lower wages, or increased turnover rates. Future studies should explore whether law enforcement in other regulatory contexts would yield similar spillover effects without negative effects. Meanwhile, the results thus far are encouraging both for people living with disabilities and for other regulatory actions in areas of enforcement ranging from the environment to health.
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