Productivity and wage gaps between informal and formal firms in India: Trends and determinants

Rabbani, Golam and Raj S N, Rajesh (2024) Productivity and wage gaps between informal and formal firms in India: Trends and determinants. Journal of the International Council for Small Business, 5 (3). pp. 282-303. ISSN 2643-7015

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Abstract

This study examines the productivity and wage gaps between informal and formal sector firms in India. Using a comprehensive dataset covering a 15-year period, we explore the influence of access to finance, infrastructure, and labor regulations on these gaps. Employing standard Oaxaca decomposition method, we analyze the role of these factors in explaining the informal–formal gaps in wages and productivity. Our results reveal significant and expanding gaps in both productivity and wages between informal and formal firms. Decomposition analysis suggests firm characteristics and infrastructure as primary factors widening the gaps, while access to finance and flexible labor regulations help narrow them. The findings point to the importance of targeted interventions needed to augment the growth and development of the informal manufacturing sector. Policies that enhance access to finance, improve infrastructure, and promote favorable labor markets can contribute to narrowing the gaps.

Item Type:	Article
Authors:	Rabbani, Golam and Raj S N, Rajesh
Document Language:	Language English
Uncontrolled Keywords:	Productivity gap, wage disparities, informal sector, access to finance, infrastructure, labor regulations, manufacturing sector, India
Subjects:	Social sciences > Economics Social sciences > Economics > Labor economics History & geography > History of Asia > India and neighboring south Asian countries
Divisions:	Azim Premji University - Bengaluru > Research Centre > Centre for Sustainable Employment
Full Text Status:	None
URI:	http://publications.azimpremjiuniversity.edu.in/id/eprint/6951
Publisher URL:	https://doi.org/10.1080/26437015.2024.2336458

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