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

March 2, 2016

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Rahul Anand, and Purva Khera. Macroeconomic Impact of Product and Labor Market Reforms on Informality and Unemployment in India, (USA: International Monetary Fund, 2016) accessed September 18, 2024

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.

Subject: Commodity markets, Economic sectors, Financial crises, Financial markets, Labor, Labor costs, Labor markets, Unemployment, Wages

Keywords: Bargaining power, Bayesian estimation, Commodity markets, DSGE, Entry cost, Global, Hiring cost, Increase output, Indian economy, Informality, Labor costs, Labor market deregulation, Labor markets, Open economy, Product market deregulation, Reforms help, Sector wage, Structural reforms, Unemployment, Wage bargaining, Wage inequality, Wages

Publication Details

Pages:

59
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2016/047
Stock No:

WPIEA2016047
ISBN:

9781513545257
ISSN:

1018-5941

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