Of Missing Middle” and Size-based Regulation

Azim Premji University,


Preponderance of small (that is, less than 10 workers) sized manufacturing establishments in India is said to reject their inability to growth in size on account of prohibitive cost of regulatory compliance (and the associated corruption). Similarly, the U” shaped (or bi-modal) distribution of manufacturing employment by size of establishment or enterprise – popularly termed the missing middle” – is argued to be the outcome of the rigid labour laws, adversely a acting productivity growth. Do the foregoing propositions represent hard facts, or artefacts of mis-measurement and misinterpretation of the evidence? The paper contends that it is the latter: the observed employment distribution by size is more likely to reject the widespread and growing evasion of o3cial registration, and under-reporting or mis-representation in the administrative data. Further, the wide schism observed between the organised (formal) and unorganised (informal) labour markets represents persistence of surplus labour, and organisational dualism – à la Hella Myint — on account of technology and organisation of production in the modern sector; and perhaps not on account of policy induced rigidities in the labour market, as many contend.


  • R.Nagaraj