Centre for Development Economics
Department of Economics, Delhi School of Economics


Import Competition and Formalization of the Workforce


 Vidhya Soundararajan (Indian Institute of Management Bangalore) 

Thursday, 3 December 2020 at 3:00 P.M.


The debate on the effects of import competition on sectoral composition of employment remains unsettled. Using the case of the Indian manufacturing sector and exploiting plausibly exogenous variation from Chinese imports, we provide the first causal evidence that higher import competition increases the share of the formal sector employment. This increase is mainly driven by an increase in contract labor, for whom wages are lower than regular workers, and firing costs are absent. The aggregate effects are entirely driven by firms in the top 50% of the productivity distribution. In contrast to the formal firms, informal sector firms shrink and drop workers as a result of the competition. Our estimates imply that Chinese import competition led to an increase in the share of formal sector employment by 4.63 percentage points between 2000 and 2005. We also find a significant labor productivity gap between formal and informal sector manufacturing firms implying an increase in aggregate labor productivity by 3.89%. Our results are robust to IV estimates and controlling for a host of other potential trade and industry level channels.

All are cordially invited.

Please find the link to the meeting below:

Meeting ID: 924 3380 4206
Passcode: 942810


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