The Distribution of Firm Size in India: What Can Survey Data Tell Us?

Abstract

We use establishment-level data from Indian manufacturing to describe the distribution of firm size in terms of employment, and discuss implications for public policy. A unique feature of our analysis is the use of nationally representative establishment-level data from both the registered (formal) and unregistered (informal) components of the Indian manufacturing sector. We also examine how the distribution of firm size varies across states coded by recent literature as having either flexible or inflexible labor regulations. We find little difference in the size distribution of firms between states believed to have flexible labor regulations versus those with inflexible labor regulations. However, restricting attention to labor-intensive industries, we find a greater prevalence of larger-sized firms in states with flexible labor regulations. This suggests that labor regulations may indeed be affecting firm size adversely. More generally, our paper serves to illustrate the point that establishment-level survey data represent a very rich source for work on public policy issues.

Keywords: Size Distribution of Firms, Labor Regulations, India

JEL Classification: L11, L25, L60, O17, J48