In a public lecture at the School of Public Policy on February 12, Boston University PhD candidate Amrit Amirapu presented his research (joint with Michael Gechter) on the costs of labor regulation in India. Amirapu argued that certain regulations have led to distortions in firm sizes and a misallocation of resources between more productive and less productive firms. The data had significant variation by state, industry, and ownership type due to corruption and poor state implementation.
Using data from India’s 2005 Economic Census, Amirapu analyzed the distribution of firms by size to estimate the implied costs of regulation. In his analysis, he considered a number of regulations based on firm size and highlighted issues with current labor laws including the problem of over-legislation. He concluded that regulation increases the unit labor cost of firms with more than 10 employees by 35 percent. This increased labor cost is related to a type of corruption in which inspectors take advantage of the bureaucratic nature of labor regulations to extort bribes from firms.
Based on his findings, Amirapu recommended that policymakers amend labor regulations to reduce the potential for extortionary behavior on the part of inspectors.