Entry Regulation, Labor Laws and Informality

by Siddharth Sharma, April 2009

Does the regulation of entry cause informality in the manufacturing sector of developing countries? This paper presents evidence from India which suggests that a policy reform which lifted barriers to entry lessened informality. This reduction in informality was accompanied by gains in average labor productivity in the informal sector. However, this impact of deregulation appears to have depended on state-level labor laws, being measurably larger in states with more pro-employer labor laws.

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