Size-Dependent Labor Regulations and Structural Transformation in India
AbstractLabor regulations in India increase the cost of hiring labor for larger establishments and have been cited as an important reason for the lack of mid-sized establishments in the manufacturing sector. Using data for India, we calibrate a two-sector model in which agents differ in their managerial ability in manufacturing. In the presence of size-dependent labor regulations, the model generates the observed employment distribution across manufacturing establishments in India. In a counterfactual exercise, removing the regulations increases aggregate output per worker by 2.3% and also increases labor productivity in agriculture relative to manufacturing by 4%. We find that labor regulations in manufacturing have a detrimental effect on the productivity of the agricultural sector and hence impede the process of structural transformation.
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Bibliographic InfoPaper provided by The University of Winnipeg, Department of Economics in its series Departmental Working Papers with number 2012-03.
Length: 12 pages
Date of creation: Oct 2012
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Other versions of this item:
- Cai, Wenbiao & Pandey, Manish, 2013. "Size-dependent labor regulations and structural transformation in India," Economics Letters, Elsevier, vol. 119(3), pages 272-275.
- K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law
- O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-11-11 (All new papers)
- NEP-DEV-2012-11-11 (Development)
- NEP-LAB-2012-11-11 (Labour Economics)
- NEP-LAW-2012-11-11 (Law & Economics)
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