Working Paper: NBER ID: w9879
Authors: Rana Hasan; Devashish Mitra; K V Ramaswamy
Abstract: Using industry-level data disaggregated by states, this paper finds a positive impact of trade liberalization on labor-demand elasticities in the Indian manufacturing sector. These elasticities turn out to be negatively related to protection levels that vary across industries and over time. Furthermore, we find that these elasticities are not only higher for Indian states with more flexible labor regulations, they are also impacted to a larger degree by trade reforms. Finally, we find that after the reforms, volatility in productivity and output gets translated into larger wage and employment volatility, theoretically a possible consequence of larger labor-demand elasticities.
Keywords: No keywords provided
JEL Codes: F1; J3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Trade liberalization (F13) | Labor demand elasticities (J23) |
| Higher protection levels (D18) | Lower labor demand elasticities (J23) |
| Labor market flexibility (J48) | Greater increase in labor demand elasticities after trade reforms (J49) |
| Volatility in productivity and output (O49) | Greater wage and employment volatility (J39) |
| Trade reforms (F13) | Labor demand elasticities (J23) |