Essays on labour markets business cycles and monetary policy in india

Abstract

There has been a growing interest to understand the business cycles in Emerging Market Economies EMEs However the focus of the existing studies has been limited to understanding the dynamics of business cycles and documenting the effect of shocks to the EMEs This dissertation builds further on the existing literature and explores the inter linkages of the dual labour market business cycles monetary policy and inequality with a focus on India In the first chapter we begin by empirically documenting the asymmetric business cycles in both regular and contract labour markets in India We then investigate the role of nominal wage rigidities and labour adjustment cost in accounting for the employment and output dynamics Using data from the Annual Survey of Industries we find that the output growth is negatively skewed More importantly we observe that the growth in regular employment is negatively skewed while that of contract employment is positively skewed On the other hand the nominal wage growth of regular workers exhibits positive skewness while that of contract workers exhibit negative skewness Using a standard business cycle model augmented with asymmetric wage adjustment costs for regular and contract labour coupled with labour adjustment cost for regular labour does a good job of explaining the asymmetries in output and employment cycles We also find that the presence of contract labour reduces the asymmetry in output growth by around 85 percent In the second chapter we extend the framework of Chapter 1 to include both regular and contract households separately The regular workers have access to financial markets and accumulate capital whereas contract workers do not have any access to financial markets and consume only from their labour income In such a set up we then examine the role of wage adjustment costs and the determinacy property of interest rate rule Our results show that determinacy is crucially dependent on the wage stickiness and share of the contract labour newline newline