Labour Regulation and Employment Dynamics at the State Level in India

India’s federal and state-level labour regulations are evaluated using a set of standardised tools. Though federal labour regulations are found to be highly restrictive in international comparison with OECD countries, there is considerable variation in the regulatory stance in individual Indian states. This variation in regulation is associated with a substantial degree of de facto job flexibility in the states that have undertaken more labour reforms, and less flexibility in those states and sub-sectors that have undertaken fewer reforms. Labour market reforms could serve to limit the detrimental effects that the consequentially high labour costs and rigidity have on the dynamism of the labour market, as well as to improve the labour wage share, limit the relative increase in informal employment and also enhance aggregate productivity.