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Demonetisation and labour force participation in India: The impact of governance and political alignment

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  • Dev, Pritha
  • Unni, Jeemol

Abstract

This paper considers the demonetisation event of November 2016 in India and its impact on labour force participation and incomes with a view to understand the role of governance in how individuals weathered the shock. We measure governance at the state level by measuring if the state was ruled by Bhartiya Janta Party at the time of demonetisation which was also the ruling party in the centre under whom demonetisation was introduced. We use a difference in difference approach to compare outcomes before and after demonetisation for individuals in politically aligned states. We control for financial inclusion by the banking penetration at the state level and whether individuals had a bank account. We find evidence of a gendered impact of the macroeconomic shock of demonetisation. While we find that demonetisation is associated with an overall drop in labour force participation, we find that individuals residing in BJP ruled states fared relatively better and this was particularly true for females. We find that while incomes continued to rise post demonetisation, individuals residing in BJP ruled states had relatively better outcomes. We additionally controlled for states which were up for election in 2017 and find that individuals in states which were BJP ruled and up for reelections showed better employment and income outcomes.

Suggested Citation

  • Dev, Pritha & Unni, Jeemol, 2024. "Demonetisation and labour force participation in India: The impact of governance and political alignment," Journal of Asian Economics, Elsevier, vol. 94(C).
    • Handle: RePEc:eee:asieco:v:94:y:2024:i:c:s1049007824000770
    DOI: 10.1016/j.asieco.2024.101782
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    More about this item

    Keywords

    Female labour force participation; Income; Demonetisation;
    All these keywords.

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J16 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Gender; Non-labor Discrimination
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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