Preferential tax treatment for firms with turnovers of no more than 3.6m reais ($1.6m) has reeled many irregular enterprises into the formal economy. But it discourages companies from growing. (...) Many [employers] hire trusted kith or kin rather than a better-qualified stranger, to limit the risk of being robbed or sued by employees for flouting notoriously worker-friendly labour laws. The upshot is even more inefficiency.
Read the whole thing.
There is another story here about the leftists Brazilian labour code that destroys the country's economy:
In 1994 Ricardo Lemos (not his real name) and two friends bought a chain of pharmacies in Pernambuco, in Brazil's north-east. Immediately afterwards they were taken to court by four former employees of the pharmacies who claimed they were owed 500,000 reais (then $570,000) for overtime and holidays. Since the new owners lacked the payroll records, the labour court ruled against them—even though they had only just bought the business and the claimants had been in charge of payroll and work scheduling. The court froze their bank accounts, so they had to close the stores, with 35 redundancies. Seventeen years later three of the cases have been settled, for a total of 191,000 reais. The last drags on as the claimant's widow and son squabble over how much to accept.
Mr Lemos and his partners fell foul of Brazil's labour laws, a collection of workers' rights set out in 900 articles, some written into the country's constitution. They were originally derived from the corporatist labour code of Mussolini's Italy. They are costly: redundancies “without just cause” attract a fine of 4% of the total amount the worker has ever earned, for example. (Neither a lazy employee nor a bankrupt employer constitutes just cause.) Some are oddly specific: for example, annual leave can only be taken in one or two chunks, neither of less than ten days. In 2009, 2.1m Brazilians opened cases against their employers in the labour courts. These courts rarely side with employers. The annual cost of running this branch of the judiciary is over 10 billion reais ($6 billion).
The whole sad story is here.
I don't want to invest in Brazil or in any other country with an illiberal leftist Mussolini-inspirated labour code. Thank you.