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

Author/Editor:

Rahul Anand ; Purva Khera

Publication Date:

March 2, 2016

Electronic Access:

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Summary:

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.

Series:

Working Paper No. 2016/047

Subject:

Commodity markets Economic sectors Financial crises Financial markets Labor Labor costs Labor markets Unemployment Wages

English

Publication Date:

March 2, 2016

ISBN/ISSN:

9781513545257/1018-5941

Stock No:

WPIEA2016047

Pages:

59

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