Indian Labor Regulations and the Cost of Corruption: Evidence from the Firm Size Distribution

In this paper, we estimate the costs associated with an important suite of labor regulations in India by taking advantage of the fact that these regulations apply only to firms above a size threshold. Using distortions in the firm size distribution together with a structural model of firm size choice, we estimate that the regulations increase firms' unit labor costs by 35%. This estimate is robust to potential misreporting on the part of firms and enumerators. We also document a robust positive association between regulatory costs and exposure to corruption, which may explain why regulations appear to be so costly in developing countries.

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Work Title Indian Labor Regulations and the Cost of Corruption: Evidence from the Firm Size Distribution
Access
Open Access
Creators
  1. Amrit Amirapu
  2. Michael Gechter
License In Copyright (Rights Reserved)
Work Type Article
Publisher
  1. MIT Press - Journals
Publication Date March 2020
Publisher Identifier (DOI)
  1. 10.1162/rest_a_00837
Source
  1. The Review of Economics and Statistics
Deposited May 27, 2022

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  • Created

    May 27, 2022 16:15 by Scholarly Communications and Copyright

  • Added Amirapu_and_Gechter_Size-Based_Regulations-1.pdf

    May 27, 2022 16:15 by Scholarly Communications and Copyright

  • Added Creator Amrit Amirapu

    May 27, 2022 16:15 by Scholarly Communications and Copyright

  • Added Creator Michael Gechter

    May 27, 2022 16:15 by Scholarly Communications and Copyright

  • Published

    May 27, 2022 16:15 by Scholarly Communications and Copyright

  • Updated Description Show Changes

    June 01, 2022 13:52 by xzx1

    Description
    • <jats:p> In this paper, we estimate the costs associated with an important suite of labor regulations in India by taking advantage of the fact that these regulations apply only to firms above a size threshold. Using distortions in the firm size distribution together with a structural model of firm size choice, we estimate that the regulations increase firms' unit labor costs by 35%. This estimate is robust to potential misreporting on the part of firms and enumerators. We also document a robust positive association between regulatory costs and exposure to corruption, which may explain why regulations appear to be so costly in developing countries. </jats:p>
    • In this paper, we estimate the costs associated with an important suite of labor regulations in India by taking advantage of the fact that these regulations apply only to firms above a size threshold. Using distortions in the firm size distribution together with a structural model of firm size choice, we estimate that the regulations increase firms' unit labor costs by 35%. This estimate is robust to potential misreporting on the part of firms and enumerators. We also document a robust positive association between regulatory costs and exposure to corruption, which may explain why regulations appear to be so costly in developing countries.