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Size-dependent labour regulations and threshold effects: The Case of contract-worker intensity in Indian manufacturing

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  • K.V. Ramaswamy

    ()
    (Indira Gandhi Institute of Development Research)

Abstract

Labour regulations like employment protection legislation in India are size-dependent rules and therefore constitute a basis for threshold effects. Firms could use non-permanent workers to stay below the legal establishment size threshold of 100 workers. This strategy is expected to cause the ratio of non-permanent to total workers to peak at size close to the legal threshold size. The study is based on a large nationally representative unbalanced panel of manufacturing plants in the formal sector covering 25 states and 5 union territories of India spanning the period 1998-2008. The average contract-worker intensity of factories in size group 50-99 is found to be significantly higher in general and particularly in labour intensive industries located in states categorized as inflexible. Contrary to the job security enhancing intention of labour regulation the employment status of average workers in establishments close to or just above the threshold size appear to be more vulnerable.

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Bibliographic Info

Paper provided by Indira Gandhi Institute of Development Research, Mumbai, India in its series Indira Gandhi Institute of Development Research, Mumbai Working Papers with number 2013-012.

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Length: 29 pages
Date of creation: Jul 2013
Date of revision:
Handle: RePEc:ind:igiwpp:2013-012

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Keywords: labour regulation; threshold; firm size distribution; employment;

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  1. Achyuta Adhvaryu & A. V. Chari & Siddharth Sharma, 2013. "Firing Costs and Flexibility: Evidence from Firms' Employment Responses to Shocks in India," The Review of Economics and Statistics, MIT Press, vol. 95(3), pages 725-740, July.
  2. Sean Dougherty, 2008. "Labour Regulation and Employment Dynamics at the State Level in India," OECD Economics Department Working Papers 624, OECD Publishing.
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