Trade Reforms, Labor Regulations and Labor-Demand Elasticities: Empirical Evidence from India

Rana Hasan · Devashish Mitra · Kannan Ramaswamy

78 citations0/0 files storedNational Bureau of Economic Research

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Global trade and economics Labor market dynamics and wage inequality Indian Economic and Social Development

Abstract

Using industry-level data disaggregated by states, this paper finds a positive impact of trade liberalization on labor-demand elasticities in the Indian manufacturing sector.These elasticities turn out to be negatively related to protection levels that vary across industries and over time.Furthermore, we find that these elasticities are not only higher for Indian states with more flexible labor regulations, they are also impacted to a larger degree by trade reforms.Finally, we find that after the reforms, volatility in productivity and output gets translated into larger wage and employment volatility, theoretically a possible consequence of larger labor-demand elasticities.

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References

1991Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations 2003Analysis of Panel Data 1998Has Globalization Gone Too Far?1997Has Globalization Gone Too Far?2002Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development 1996Globalization, Outsourcing, and Wage Inequality 1986Errors in variables in panel data 2004Can Labor Regulation Hinder Economic Performance? Evidence from India

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2010Factor Immobility and Regional Impacts of Trade Liberalization Evidence on Poverty from India 2008Are all labor regulations equal? Evidence from Indian manufacturing 2009Labor Regulations, Unions, and Social Protection in Developing Countries: Market distortions or Efficient Institutions?2010Offshoring, labour market institutions and the elasticity of labour demand 2006Has International Trade Affected Workers’ Bargaining Power?2012

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