In this paper, we estimate the costs associated with an important suite of labor regulations in India by taking advantage of the fact that these regulations apply only to firms above a size threshold. Using distortions in the firm size distribution together with a structural model of firm size choice, we estimate that the regulations increase firms' unit labor costs by 35%. This estimate is robust to potential misreporting on the part of firms and enumerators. We also document a robust positive association between regulatory costs and exposure to corruption, which may explain why regulations appear to be so costly in developing countries.

To illustrate the intuition behind the methodological contribution, I begin by laying out a simple example based on a stylized version of McKenzie and Woodru↵ (2008). Microentrepreneur profits can take two values: high or low. Suppose we have obtained experimental results that tell us giving cash transfers to microentrepreneurs caused a large increase in the share realizing high profits in location e, from 1 3 of all entrepreneurs to 2 3 . The program is intended to relax credit constraints, allowing small-scale entrepreneurs to take advantage of potentially high returns to capital and begin a virtuous cycle of capital accumulation and business growth. We observe only these binary outcomes and no covariates.We would like to know what the results from location e tell us about the causal e↵ect we can expect in location a, where no cash transfer (CT) program was implemented. Whereas 1 3 of microentrepreneurs had high profits without CTs in location e, 1 2 of microentrepreneurs are high-profit in location a. How will the di↵erence in the no-CT profits moderate the ATE

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