IDEAS home Printed from https://ideas.repec.org/p/ris/cafral/022280.html

Employment Protection Legislation And Informality: Theory And Evidence From India

Author

Listed:
  • Ritam Chaurey

    (Johns Hopkins University)

  • Gaurav Chiplunkar

    (University of Virginia)

  • Vidhya Soundararajan

    (Centre for Advanced Financial Research and Learning (CAFRAL))

Abstract

We present causal evidence on how employment protection legislation (EPL) that penalize firms for hiring contractual workers can have adverse effects in contexts characterized by high levels of informality. While they increase compliance and reduce informality on the “intensive margin” as formal sector firms reduce hiring contract workers “off-the-books”, they increase informality on the “extensive margin”, as firms move to operating in the informal sector instead. This lowers aggregate productivity, wages and welfare in equilibrium. Counterfactual simulations demonstrate the significance of carefully designing EPL in contexts where informality is prevalent.

Suggested Citation

  • Ritam Chaurey & Gaurav Chiplunkar & Vidhya Soundararajan, 2023. "Employment Protection Legislation And Informality: Theory And Evidence From India," Working Papers 022280, Centre for Advanced Financial Research and Learning (CAFRAL).
    • Handle: RePEc:ris:cafral:022280
    as

    Download full text from publisher

    File URL: https://www.cafral.org.in/sfControl/content/Speech/7132023120358PMSoundararajan.pdf
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • J46 - Labor and Demographic Economics - - Particular Labor Markets - - - Informal Labor Market
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ris:cafral:022280. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Vijayshree (email available below). General contact details of provider: https://edirc.repec.org/data/cafrain.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.