We examined the relationship between labor market flexibility and the number of new hires (a labor market outcome) through the job matching process in India. To do this, we estimated the matching functions that incorporate a proxy variable for measuring the degree of labor market flexibilities across states in India. We utilized the state-level panel data for more than 10 years, to address heterogeneities across states and to control for fluctuations over time. This study was designed to answer two main research questions. The first is whether flexible labor markets have better outcomes in the job matching process. The second question is whether the pattern of the matching functions coefficients is systemically related to the labor market flexibility across regions. 

We found no direct relationship between labor market flexibility and new hires in the job matching process, when the labor market was analyzed as a whole. However, the findings pinpoint one clear pattern in the analysis when the labor market is partitioned into groups in terms of labor market flexibility: there is a substantial lack of labor demand in states where labor markets are not flexible.