Over the past decade, labour market outcomes have improved in India, with net employment rising
markedly for the economy as a whole. However, these gains have arisen primarily in the unorganized and
informal sectors of the economy, where productivity and wages are generally much lower than in the
formal organized sector. It is only India’s organized sector that is subject to labour market regulation, and
here employment has fallen. The role of employment protection legislation in affecting employment
outcomes is controversial both in the OECD area and in India. This paper looks at the impact of
employment protection legislation and related regulation on the dynamics of employment in the organized
sector of the economy, using newly constructed measures of national regulation and state labour reforms.
We find that while reforms have taken some of the bite out of core labour laws, more comprehensive
reforms are needed to address the distortions that have emerged.
This working paper relates to the 2007 Economic Survey of India (www.oecd.org/eco/surveys/india).
