abstract: 'Purpose The purpose of this paper is to understand labor market

  regulations and their consequences for the allocation of resources.

  Design/methodology/approach This paper constructs a theoretical model to

  study labor market regulations in developing countries and how it

  affects the allocation of resources between the less productive informal

  activities and more productive formal activities. It also provides

  empirical support for some theoretical results using cross-country data.

  Findings When workers are risk-averse and the market for insurance

  against labor income risk is missing, regulations that provide insurance

  to workers (such as severance payments) reduce misallocation. However,

  regulations that simply create barriers to the dismissal of workers

  increase misallocation and end up reducing the welfare of workers. This

  study also provides some empirical evidence broadly consistent with the

  theoretical results using cross-country data. While dismissal

  regulations increase the share of informal employment, severance

  payments to workers do not. Research limitations/implications The

  empirical exercise is constrained by the lack of availability of good

  data on the informal sector. Originality/value The analysis of the

  alternative labor market regulations analyzed in this paper in the

  presence of risk-averse workers is an original contribution to the

  literature.'
affiliation: 'Jha, P (Corresponding Author), UC Irvine, Dept Econ, Irvine, CA 92697
  USA.

  Jha, Priyaranjan, UC Irvine, Dept Econ, Irvine, CA 92697 USA.

  Hasan, Rana, Asian Dev Bank, South Asia Dept, Mandaluyong City, Philippines.'
author: Jha, Priyaranjan and Hasan, Rana
author-email: pranjan@uci.edu
author_list:
- family: Jha
  given: Priyaranjan
- family: Hasan
  given: Rana
da: '2023-09-28'
doi: 10.1108/IGDR-05-2021-0067
earlyaccessdate: NOV 2021
eissn: 1753-8262
files: []
issn: 1753-8254
journal: INDIAN GROWTH AND DEVELOPMENT REVIEW
keywords: 'Dismissal regulations; Severance payments; Misallocation; Informal

  employment; Minimum wage; O12; O17; O57; J38; J46'
language: English
month: MAR 14
number: '1'
number-of-cited-references: '32'
pages: 18-59
papis_id: 30ead6bfbd77abc526688835757e0425
ref: Jha2022labormarket
times-cited: '0'
title: Labor market policies, informality and misallocation
type: article
unique-id: WOS:000723019500001
usage-count-last-180-days: '0'
usage-count-since-2013: '4'
volume: '15'
web-of-science-categories: Development Studies
year: '2022'