Impact of regulatory reforms on labour efficiency in the indian and Pakistani commercial banks

In developing countries, the banking sector is often said to have excessive labour force as compared to any that is optimally required. This may be the case in the banking sector of the Indian Subcontinent. India and Pakistan have gone through a process of deregulation and privatisation in the banking sector during the early and the later part of the 1990s. The objective of this policy was to increase overall efficiency generally, and labour efficiency particularly, within the banking sector. The focus of this paper is the estimation of labour efficiency in the banking sector of the Indian Subcontinent. A flexible translog functional form is used where the demand for labour is a function of wages, fixed inputs, and a time trend. The results show that labour efficiency across the Indian Subcontinent banking industry is improving over time. It is also apparent that Pakistani banks are marginally more efficient in the use of labour force as compared to the Indian banks in the post-deregulation period, and that larger banks are less efficient in labour use than their smaller counterparts. This is the first study that estimates labour demand and compares the effect of deregulation on labour efficiency in Indian and Pakistani banks.