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

61 Pages Posted: 7 Mar 2017

See all articles by Rahul Anand

Rahul Anand

International Monetary Fund (IMF)

Purva Khera

International Monetary Fund (IMF)

Date Written: March 2016

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.

Keywords: Labor market reforms, India, Labor markets, Products, Unemployment, Informal sector, Hiring, Labor market regulations, structural reforms, product market deregulation, labor market deregulation,unemployment, wage bargaining, informality, DSGE, Indian economy, Bayesian estimation

Suggested Citation

Anand, Rahul and Khera, Purva, Macroeconomic Impact of Product and Labor Market Reforms on Informality and Unemployment in India (March 2016). IMF Working Paper No. 16/47. Available at SSRN: https://ssrn.com/abstract=2924360

Rahul Anand (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Purva Khera

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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