(Exchange)

This paper examines the relationship between labor market flexibility and matching function efficiency in India. With state-level disaggregated data, the matching function in India is estimated to investigate differences in the matching function efficiency across regions of different labor market flexibility. In addition, matching parameters, categorized by the degree of labor market flexibility, are estimated in the respective regions. It is the first original work that uses state-level data to evaluate the matching function in India. The data are drawn from ‘Employment Exchange in India’, the only public employment service in this country. The results show that there is no link between labor market flexibility and matching function efficiency. The evidences indicate that regions having inflexible labor markets are entirely vacancy-driven in the job matching process, implying a lack of labor demand. For such regions, it is recommended that policies to boost labor demand such as employment subsidies are appropriate to create more employment. (Executive Summary)