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Macroeconomic Impact of Product and Labor Market Reforms on Informality and Unemployment in India

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  • Rahul Anand
  • Purva Khera

Abstract

This paper investigates the implications of lowering formal regulations in labor and product markets on informality and macroeconomic outcomes in India. We estimate a DSGE model with an informal sector, and rigidities in the formal labor and product markets. Along with increasing GDP and employment, deregulation also leads to lower informality and greater product market competition. Slow reallocation of resources between the formal and informal sectors leads to some adverse impacts in the short run that can be minimized by implementing a combined package of reforms. These impacts are shown to be greater in an economy with a larger informal sector.

Suggested Citation

  • Rahul Anand & Purva Khera, 2016. "Macroeconomic Impact of Product and Labor Market Reforms on Informality and Unemployment in India," IMF Working Papers 16/47, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:16/47
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    Cited by:

    1. Julien Albertini & Anthony Terriau, 2018. "Informality over the life-cycle," Working Papers halshs-01957491, HAL.
    2. repec:spr:ijlaec:v:61:y:2018:i:1:d:10.1007_s41027-018-0131-6 is not listed on IDEAS

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    Keywords

    Wage bargaining; India; Asia and Pacific; structural reforms; product market deregulation; labor market deregulation; unemployment; informality; DSGE; Indian economy; Bayesian estimation;

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