Before liberalization in 1991, India had developed exceptionally complex labor regulations which strengthened the bargaining power of unions and increased job security in the formal economy, at the cost of employment. Deregulation and privatization can be expected to strengthen competition, accelerate productivity growth, narrow gaps between formal and informal labor markets outcomes, and weaken union power. Is this happening in post-1991 India? Because India liberalized its economy so recently, and so gradually, it is too early to tell. Key areas of the economy continue to be highly regulated, including labor markets. Yet, there are signs that industrial relations are changing. Increased competition in product markets and dissipation of rents are eroding the protection labor regulations once afforded workers in formal labor markets. In a more competitive environment, the same labor regulations that once increased job security, might expose workers to greater risks.
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