Size-Dependent Labor Regulations and Structural Transformation in India
Wenbiao Cai and
Departmental Working Papers from The University of Winnipeg, Department of Economics
Labor 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.
JEL-codes: K31 O11 O40 (search for similar items in EconPapers)
Pages: 12 pages
New Economics Papers: this item is included in nep-dev, nep-lab and nep-law
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Journal Article: Size-dependent labor regulations and structural transformation in India (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:win:winwop:2012-03
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