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countries this translates into unemployment, andin Latin America (which, however, is often overregulated),it translates into lower formal labourdemand and larger informality. For instance:• A recent study that explicitly models theimpact of firing costs over labour demand inPeru shows that an increase in expected severancepayments has a negative correlation withformal labour demand. 73• Kugler et al. 74 found that in Spain a reductionin payroll taxes and firing costs increased thedemand for permanent workers.• Acemoglu and Angrist, in an interesting studyabout the effects of the American DisabilityAct, found that outlawing the firing of disabledworkers actually reduced labour demand fordisabled workers, precisely the opposite effectthat the law intended. 75The recent work on the Indian labour regulatoryregime (Besley and Burgess, 2004; Ahsan andPagés 2007) suggests that the clauses linked tofirm size within the industrial disputes regulatoryarchitecture may have had a deleterious impacton the growth of the economy’s manufacturingindustry (Ahmed and Devarajan, 2007). However,once again, these conclusions are incomplete:Firstly, the Indian experience indicates that whilethe regulations are a part of the problem, in somecases the operational and logistical inefficienciesas well complexities associated with settlingdisputes (Ahmed and Devarajan, 2007) are significantin explaining the lack of expansion withinmanufacturing. Secondly, while amending partsof the regulatory framework is necessary it is alsotrue that active labour market programmes andpolicies, such as those recommended by the ILOfor India, must be part of any attempt at encouragingsecure employment creation and reducingpoverty levels.Towards a More NuancedUnderstanding of Labour RegulationsThe above has suggested that, on the basis ofthe assembled evidence, the labour regulatoryenvironment is important in the debate aroundoutput expansion and employment growth indomestic economies. This fact however, shouldnot translate into too blunt an interpretation,and consequent policy advice, on reforming thelabour legislative environment at the individualcountry level.Some caveats need to be introduced here if amore informed debate around labour regulationand policy reform in the developing world is toensue. They may help to ensure progress in dealingappropriately and intelligibly with the labourmarket in the event that policy reform packagesare tabled at country level. Perhaps economists,who are often at the forefront of such reformprocesses, should understand the most importantof these cautionary notes. The caveat is thatlabour regulation as a reform issue, is not to beviewed as a binary variable. The choice withinany policy reform package in most economiesis never between no labour regulation at all andcomplete, comprehensive legislation. Unduefocus by economists on extreme deregulationof the labour market often results in no reformat all. The notion that a labour market, like anyproduct market, needs to be as deregulated as faras is theoretically possible, can result in contentiousand not very productive policy debates. Inthe conclusions of the study on Impact of Regulationand Growth and Informality, Loayza et al.bring a similar message. They emphasise thattheir study ‘does not intend to assess the impactof regulation on social goals that could be beyondthe strict sphere of economic growth — broadgoals such as social equity and peace, or narrowones as worker safety, environmental conserva-162