‘We inform the debate on labour regulations in India by costing their burden on firms and studying the role corruption plays in increasing these costs.
In policy debates and academic literature, restrictive labour regulations have been blamed for some of the most significant problems faced by developing countries, including low labour force participation rates and low levels of employment in the formal sector (Besley and Burgess 2004, Botero et al. 2004, Djankov and Ramalho 2009). But there is a bit of a puzzle: why are labour regulations so costly in a developing country setting, where enforcement agencies are typically characterised by severe resource constraints, low compliance and widespread corruption (Svensson 2005, Chatterjee and Kanbur 2013, Kanbur and Ronconi 2015)? Moreover, how do you measure a regulation’s effective cost to firms if its enforcement differs in practice from what is written in the text of the laws?’