This is not an optimal choice, because it undermines the rule of law, exposes firms to costly uncertainty, impedes decent formal employment growth and leaves workers without adequate protection (Nicoletti and Scarpetta, 2005). Compliance with the law will therefore need to be better monitored and non-compliance appropriately punished. Evidence suggests that employers’ perception of the probability of being audited as well as the level of the penalty if caught matter (OECD, 2008). Tunisia has the capacity to carry out such inspections: while the ILO (2006) recommends that advanced countries should have at least one labour inspector per 10 000 employed persons and transition countries one per 20 000, Tunisia has approximately one inspector per 10 000 employed persons (i.e. in line with developed country standards).