Improving Labor Courts: Fighting Corruption with Competition

Labor courts are essential for addressing grievances adequately and for well-functioning labor markets. Unfortunately, courts in developing countries function poorly. In Mexico, the law indicates that all lawsuits should be adjudicated within 3 months, but courts face backlogs of about 4 years. Delays are mostly due to the fact that a trial cannot start without the defendant first being notified in person by a court employee (notifier). But a notifier will often fail to notify a defendant because the defendant has paid him a bribe not to, or because delay helps him extract bribes from the plaintiff. In recent years, only in 30% of cases is the first hearing held on the date initially assigned when the case is filed. On average the first hearing is postponed 3 times, taking well over one year to be concluded. We propose an intervention to increase notification rates and reduce corruption in the labor courts. Notifiers are currently assigned to areas within which they act as the sole notifier, giving them monopoly control over notifications in their area. Thus, a notifier is well positioned to extract bribes from both the defendant and plaintiff. The notifier can guarantee the defendant that a notification will never take place and can simultaneously threaten the plaintiff with never making the notification. Our intervention will randomly rotate notifiers across areas. Under a rotation scheme, a notifier cannot guarantee to the defendant that, in exchange for a bribe today, a notification will continue to fail in the future. The defendant will likely need to bribe additional notifiers to keep the notification from happening. Similarly, under the rotation scheme the notifier cannot threaten the plaintiff with the notification failing in the future if a bribe is not paid today. Our main hypothesis is that the elimination of exclusive control by notifiers will decrease corruption and increase notification rates. We will measure the effect of our intervention on the probability that a case is notified (reflected in administrative data), on the speed of notification, and for which types of workers, firms, and notifiers the increase is largest. We will also measure effort, proxied by the number of firms visited per day and kilometers travelled by the notifier. This information will be captured by a GPS-enabled smartphone that the courts plan to introduce for all notifiers to use. We will gather survey-audit data on firms to determine if the address of the defendant exists, if firms were visited by the notifier, and if notifiers asked for a bribe. We will also collect worker surveys to measure if their lawyer asked them for a bribe for the notifier. The policy is scalable and of current relevance as the Mexican congress is in process of contemplating the adoption of a notifier rotation policy.