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Are All Labor Regulations Equal? Evidence from Indian Manufacturing

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  • Ahsan, Ahmad

    ()
    (World Bank)

  • Pagés, Carmen

    ()
    (Inter-American Development Bank)

Abstract

Using manufacturing data for India, this paper studies the economic effects of legal amendments on two types of labor laws: employment protection and labor dispute resolution legislation. We find that laws that increase employment protection or the cost of labor disputes substantially reduce registered sector employment and output. These laws do no seem to benefit workers either, as they do not increase the share of value added that goes to labor. Labor-intensive industries, such as textiles, are the hardest hit by amendments that increase employment protection while capital-intensive industries are the most affected by laws that increase the cost of labor dispute resolution. These adverse effects are not alleviated by the widespread and increasing use of contract labor, particularly in regards to employment. Results are robust to an alternative codification of legal amendments suggested by Bhattacharjea (2006).

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3394.

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Length: 54 pages
Date of creation: Mar 2008
Date of revision:
Handle: RePEc:iza:izadps:dp3394

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Keywords: employment protection; labor dispute resolution; contract labor; employment; India;

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References

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  1. Cahuc, Pierre & Postel-Vinay, Fabien, 2002. "Temporary jobs, employment protection and labor market performance," Labour Economics, Elsevier, vol. 9(1), pages 63-91, February.
  2. Carmen Pagés-Serra & Alejandro Micco, 2008. "The Economic Effects of Employment Protection: Evidence from International Industry-Level Data," Research Department Publications 4496, Inter-American Development Bank, Research Department.
  3. Peter R. Fallon & Robert E. B. Lucas, 1989. "Job Security Regulations and the Dynamic Demand for Industrial Labor in India and Zimbabwe," Boston University - Institute for Economic Development 2, Boston University, Institute for Economic Development.
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  5. Amin, Mohammad, 2007. "Labor regulation and employment in India's retail stores," Policy Research Working Paper Series 4314, The World Bank.
  6. James J. Heckman & Carmen Pagés, 2004. "Introduction to "Law and Employment: Lessons from Latin American and the Caribbean"," NBER Chapters, in: Law and Employment: Lessons from Latin America and the Caribbean, pages 1-108 National Bureau of Economic Research, Inc.
  7. Rana Hasan & Devashish Mitra & K.V. Ramaswamy, 2007. "Trade Reforms, Labor Regulations, and Labor-Demand Elasticities: Empirical Evidence from India," The Review of Economics and Statistics, MIT Press, vol. 89(3), pages 466-481, August.
  8. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Juan Botero, 2003. "The Regulation of Labor," NBER Working Papers 9756, National Bureau of Economic Research, Inc.
  9. Almeida, Rita & Carneiro, Pedro, 2009. "Enforcement of labor regulation and firm size," Journal of Comparative Economics, Elsevier, vol. 37(1), pages 28-46, March.
  10. James Heckman & Carmen Pages, 2003. "Law and Employment: Lessons from Latin America and the Caribbean," NBER Working Papers 10129, National Bureau of Economic Research, Inc.
  11. Fallon, Peter R & Lucas, Robert E B, 1991. "The Impact of Changes in Job Security Regulations in India and Zimbabwe," World Bank Economic Review, World Bank Group, vol. 5(3), pages 395-413, September.
  12. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2002. "How Much Should We Trust Differences-in-Differences Estimates?," NBER Working Papers 8841, National Bureau of Economic Research, Inc.
  13. Kahn, Lawrence M., 2005. "The Impact of Employment Protection Mandates on Demographic Temporary Employment Patterns: International Microeconomic Evidence," IZA Discussion Papers 1548, Institute for the Study of Labor (IZA).
  14. Bertola, Giuseppe, 1990. "Job security, employment and wages," European Economic Review, Elsevier, vol. 34(4), pages 851-879, June.
  15. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
  16. David H. Autor & William R. Kerr & Adriana D. Kugler, 2007. "Does Employment Protection Reduce Productivity? Evidence From US States," Economic Journal, Royal Economic Society, vol. 117(521), pages 189-217, 06.
  17. Lall, Somik V. & Mengistae, Taye, 2005. "The impact of business environment and economic geography on plant-level productivity : an analysis of Indian industry," Policy Research Working Paper Series 3664, The World Bank.
  18. Dutta Roy, Sudipta, 2004. "Employment dynamics in Indian industry: adjustment lags and the impact of job security regulations," Journal of Development Economics, Elsevier, vol. 73(1), pages 233-256, February.
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Citations

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Cited by:
  1. Kaplan, David S., 2009. "Job creation and labor reform in Latin America," Journal of Comparative Economics, Elsevier, vol. 37(1), pages 91-105, March.
  2. Gallagher, Mary & Giles, John T. & Park, Albert & Wang, Meiyan, 2013. "China's 2008 Labor Contract Law: Implementation and Implications for China's Workers," IZA Discussion Papers 7555, Institute for the Study of Labor (IZA).
  3. Bishwanath Goldar, 2010. "Informalization of Industrial Labour in India: Are labour market rigidities and growing import competition to blame?," Working Papers id:3125, eSocialSciences.
  4. Kathuria, Vinish & Rajesh Raj, S.N. & Sen, Kunal, 2013. "The effects of economic reforms on manufacturing dualism: Evidence from India," Journal of Comparative Economics, Elsevier, vol. 41(4), pages 1240-1262.
  5. Rita Almeida & Pedro Carneiro, Renata Narita, 2013. "Producing Higher Quality Jobs: Enforcement of Mandated Benefits across Brazilian Cities between 1996-2007," Working Papers, Department of Economics 2013_22, University of São Paulo (FEA-USP).
  6. Djankov, Simeon & Ramalho, Rita, 2009. "Employment laws in developing countries," Journal of Comparative Economics, Elsevier, vol. 37(1), pages 3-13, March.
  7. Ayyagari, Meghana & Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2013. "Size and age of establishments: evidence from developing countries," Policy Research Working Paper Series 6718, The World Bank.
  8. Josef Montag, 2013. "Is Pro-Labor Law Pro-Women? Evidence from India," MENDELU Working Papers in Business and Economics 2013-40, Mendel University in Brno, Faculty of Business and Economics.
  9. Petia Topalova & Nina Pavcnik & Amit Khandelwal & Penny Goldberg, 2009. "Multi-product Firms and Product Turnover in the Developing World: Evidence from India," 2009 Meeting Papers 176, Society for Economic Dynamics.
  10. Holzmann, Robert & Pouget, Yann & Vodopivec, Milan & Weber, Michael, 2011. "Severance pay programs around the world : history, rationale, status, and reforms," Social Protection Discussion Papers 62726, The World Bank.
  11. Aterido, Reyes & Hallward-Driemeier, Mary & Pages, Carmen, 2009. "Big constraints to small firms'growth ? business environment and employment growth across firms," Policy Research Working Paper Series 5032, The World Bank.
  12. Mitra, Arup, 2013. "Can industry be the key to pro-poor growth? : An exploratory analysis for India," ILO Working Papers 484346, International Labour Organization.
  13. Ghosh, Saibal, 2013. "Do economic reforms matter for manufacturing productivity? Evidence from the Indian experience," Economic Modelling, Elsevier, vol. 31(C), pages 723-733.

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