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Economic Reform, Labour Markets and Informal Sector Employment: Evidence from India

Department of Economics, University of Sussex, Brighton BN1 9RH, UK
Economies 2019, 7(2), 55; https://doi.org/10.3390/economies7020055
Received: 25 January 2019 / Revised: 20 May 2019 / Accepted: 3 June 2019 / Published: 13 June 2019
Theory and economic intuition suggest that domestic institutions influence the employment impact of economic reform, but the evidence base is thin. This paper seeks to address this by examining the extent to which differences in regional labour market flexibility shaped the impact of unanticipated economic reforms on employment in informal (unregistered) manufacturing enterprises in India (1990–2001). It employs a difference-in-differences strategy and finds that tariff reductions are not associated with significant employment shifts in informal enterprises, a finding that may be attributable to the fact that these enterprises rarely engage in international trade. However, on average and ceteris paribus, delicensing (FDI reform) is associated with statistically significant increases (increases) in informal employment and informal enterprise numbers in inflexible (flexible) labour markets. There is some evidence that the delicensing effect is attributable to increases in product market competition in delicensed industries. However, the channel underlying the result associated with FDI reform is less clear. In light of the persistent primacy of the informal sector in India and other developing economies, these findings have substantial policy relevance. View Full-Text
Keywords: economic reform; informal sector; employment; labour market flexibility; India economic reform; informal sector; employment; labour market flexibility; India
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Shembavnekar, N. Economic Reform, Labour Markets and Informal Sector Employment: Evidence from India. Economies 2019, 7, 55.

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