Does the regulation of entry cause informality in the manufacturing sector of developing countries? This note presents evidence from India that suggests that a policy reform that lifted barriers to entry lessened informality. This reduction in informality was accompanied by gains in average labor productivity in the informal sector. The most likely reasons for this productivity gain appear to have been a decline in inefficient single-household firms and an increase in more efficient multi-person firms. However, the impact of entry deregulation also appears to have depended on state-level labor laws, being measurably larger in states with more pro-employer labor laws.
Details
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Author
Sharma, Siddharth
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Document Date
2009/01/01
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Document Type
Brief
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Report Number
50337
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Volume No
1
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Total Volume(s)
1
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Country
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Region
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Disclosure Date
2010/07/01
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Disclosure Status
Disclosed
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Doc Name
Entry regulation, labor laws, and informality
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Keywords
Labor Law;informal sector;regulation of entry;labor regulation;point of departure;nationally representative survey;barrier to entry;economies of scale;productivity gain;
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Citation
Sharma, Siddharth
Entry regulation, labor laws, and informality (English). Enterprise surveys note ; no. 1. Informality Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/850181468326220845/Entry-regulation-labor-laws-and-informality