Of “Missing Middle” and Size-based Regulaton: A New Fronter in the Labour Market Flexibility

Nagaraj, Debate R. (2018) Of “Missing Middle” and Size-based Regulaton: A New Fronter in the Labour Market Flexibility. Working Paper. Azim Premji University, Bengaluru.

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Abstract

Preponderance of small (that is, less than 10 workers) sized manufacturing establishments in India is said to re&ect their inability to growth in size on account of prohibitive cost of regulatory compliance (and the associated corruption). Similarly, the “U” shaped (or bi-modal) distribution of manufacturing employment by size of establishment or enterprise – popularly termed the “missing middle” – is argued to be the outcome of the rigid labour laws, adversely a/ecting productivity growth. Do the foregoing propositions represent hard facts, or artefacts of mis-measurement and misinterpretation of the evidence? The paper contends that it is the latter: the observed employment distribution by size is more likely to re&ect the widespread and growing evasion of o3cial registration, and under-reporting or mis-representation in the administrative data. Further, the wide schism observed between the organised (formal) and unorganised (informal) labour markets represents persistence of surplus labour, and organisational dualism – a la Hella Myint - on account of technology and organisation of production in the modern sector; and perhaps not on account of policy induced rigidities in the labour market, as many contend.

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Monograph (Working Paper)

Authors:

Nagaraj, Debate R.

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