Labor Regulation, Employment and Informality: Evidence from the Retail Sector in India
43 Pages Posted: 4 Mar 2008
Date Written: March 2008
A new dataset of 1,948 retail stores in India compiled by the World Bank's Enterprise Surveys shows that 27% of the stores find labor regulations as a problem for their business. Using these data we analyze the effect of labor regulations on employment at the store level. We find that stricter labor regulations have a strong negative effect on employment. Our estimates show that labor reforms are likely to increase employment by 22% of the current level for an average store. We also address the issue of informality in the country's retail sector. Our findings suggest that more stringent labor laws encourage firms to operate in the relatively less efficient informal retail sector where labor laws are hardly implemented. According to our estimates, labor reforms could reduce the level of informality by as much as 33% of the current level.
Keywords: Labor regulations, India, Employment, Retail, Informality
JEL Classification: J080, K31, L81, O33, O53
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