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Labor Regulations and the Firm Size Distribution in Indian Manufacturing

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  • Rana Hasan
  • Karl Robert L. Jandoc
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    Abstract

    We use data from Indian manufacturing to describe the distribution of firm size in terms of employment and discuss implications for public policy, especially labor regulations. A unique feature of our analysis is the use of nationally representative establishment-level data from both the registered (formal) and unregistered (informal) segments of the Indian manufacturing sector. While we find there to be little difference in the size distribution of firms across states believed to have flexible labor regulations versus those with inflexible labor regulations, restricting attention to labor-intensive industries changes the picture dramatically. Here, we find greater prevalence of larger sized firms in states with flexible labor regulations. Moreover, this differential prevalence is higher among firms that commenced production after 1982, when a key aspect of Indian labor regulations was tightened. Overall, our findings are consistent with the argument that labor regulations have affected firm size adversely.

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    File URL: http://indianeconomy.columbia.edu/sites/default/files/working_papers/wp_2012-3.pdf
    File Function: First version, 2012
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    Bibliographic Info

    Paper provided by School of International and Public Affairs, Columbia University in its series Working Papers with number 1118.

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    Length: 42 pages
    Date of creation: Jan 2012
    Date of revision: Jan 2012
    Handle: RePEc:ecq:wpaper:1118

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    Web page: http://indianeconomy.columbia.edu/
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    Related research

    Keywords: India; Labor regulations; Firm size distribution; manufacturing; employment; public policy;

    This paper has been announced in the following NEP Reports:

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    1. T. Ravi Kumar, 2002. "The Impact of Regional Infrastructure Investment in India," Regional Studies, Taylor & Francis Journals, vol. 36(2), pages 194-200.
    2. Nataraj, Shanthi, 2011. "The impact of trade liberalization on productivity: Evidence from India's formal and informal manufacturing sectors," Journal of International Economics, Elsevier, vol. 85(2), pages 292-301.
    3. Panagariya, Arvind, 2011. "India: The Emerging Giant," OUP Catalogue, Oxford University Press, number 9780199751563.
    4. Poonam Gupta & Rana Hasan & Utsav Kumar, 2008. "Big Reforms but Small Payoffs: Explaining the Weak Record of Growth in Indian Manufacturing," India Policy Forum, Global Economy and Development Program, The Brookings Institution, vol. 5(1), pages 59-123.
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