Stiff wage laws hold India from tackling high unemployment and low manufacturing base
In India, ultra-high restrictions on worker layoffs in the organised sector encourage firms to operate in the unorganised sector.
A recent visit to South Africa has provided me the opportunity to study its economy. With a population of just 51 million, South Africa is smaller than 10 Indian states.
Its per capita income, at $8,000, is more than five times that of India. Despite these differences, there are striking similarities between the two economies. While India has 90% or more of its labour force in the informal sector, South Africa suffers from 25% unemployment. Both outcomes can be traced to labour-market inflexibilities.