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

Author/Editor: Rahul Anand ; Purva Khera
Publication Date: March 02, 2016
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
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. 16/47
Subject(s): Labor market reforms | India | Labor markets | Products | Unemployment | Informal sector | Hiring | Labor market regulations

Publication Date: March 02, 2016
ISBN/ISSN: 9781513545257/1018-5941 Format: Paper
Stock No: WPIEA2016047 Pages: 59
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