Employment Protection Legislation and Plant-Level Productivity in India
AbstractUsing plant-level data from the Annual Survey of Industries (ASI) for the fiscal years from 1998-99 through 2007-08, this study provides plant-level cross-state/time-series evidence of the impact of employment protection legislation (EPL) on total factor productivity (TFP) and labor productivity in India. Identification of the effect of EPL follows from a difference-in-differences estimator inspired by Rajan and Zingales (1998) that takes advantage of the state-level variation in labor regulation and heterogeneous industry characteristics. The fundamental identification assumption is that EPL is more likely to restrict firms operating in industries with higher labor intensity and/or higher sales volatility. Our results show that firms in labor intensive or more volatile industries benefited the most from labor reforms in their states. Our point estimates indicate that, on average, firms in labor intensive industries and in flexible labor markets have TFP residuals 14% higher than those registered for their counterparts in states with more stringent labor laws. However, no important differences are identified among plants in industries with low labor intensity when comparing states with high and low levels of EPL reform. Similarly, the TFP of plants in volatile industries and in states that experienced more pro-employer reforms is 11% higher than that of firms in volatile industries and in more restrictive states; however, the TFP residuals of plants in industries with low labor intensity are 11% lower in high EPL reform states than in states with lower levels of EPL reform. In sum, the evidence presented here suggests that the high labor costs and rigidities imposed through Indian federal labor laws are lessened by labor market reforms at the state level.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17693.
Date of creation: Dec 2011
Date of revision:
Note: ITI PR
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Other versions of this item:
- Sean Dougherty & Verónica Frisancho Robles & Kala Krishna, 2011. "Employment Protection Legislation and Plant-Level Productivity in India," OECD Economics Department Working Papers 917, OECD Publishing.
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
- J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining
- J8 - Labor and Demographic Economics - - Labor Standards
- K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-01-03 (All new papers)
- NEP-DEV-2012-01-03 (Development)
- NEP-EFF-2012-01-03 (Efficiency & Productivity)
- NEP-LAB-2012-01-03 (Labour Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Harrison, Ann E. & Martin, Leslie A. & Nataraj, Shanthi, 2011.
"Learning versus stealing : how Important are market-share -- reallocations to India's productivity growth?,"
Policy Research Working Paper Series
5761, The World Bank.
- Ann E. Harrison & Leslie A. Martin & Shanthi Nataraj, 2013. "Learning versus Stealing: How Important Are Market-Share Reallocations to India's Productivity Growth?," World Bank Economic Review, World Bank Group, vol. 27(2), pages 202-228.
- Ann E. Harrison & Leslie A. Martin & Shanthi Nataraj, 2011. "Learning versus Stealing: How Important are Market-Share Reallocations to India's Productivity Growth," Working Papers 832, RAND Corporation Publications Department.
- Ann E. Harrison & Leslie A. Martin & Shanthi Nataraj, 2011. "Learning Versus Stealing: How Important are Market-Share Reallocations to India's Productivity Growth?," NBER Working Papers 16733, National Bureau of Economic Research, Inc.
- Sean Dougherty, 2008. "Labour Regulation and Employment Dynamics at the State Level in India," OECD Economics Department Working Papers 624, OECD Publishing.
- Poschke, Markus, 2009.
"Employment protection, firm selection, and growth,"
Journal of Monetary Economics,
Elsevier, vol. 56(8), pages 1074-1085, November.
- Markus Poschke, 2006. "Employment Protection, Firm Selection, and Growth," Economics Working Papers ECO2006/35, European University Institute.
- Markus Poschke, 2007. "Employment protection, firm selection, and growth," 2007 Meeting Papers 389, Society for Economic Dynamics.
- Poschke, Markus, 2007. "Employment Protection, Firm Selection, and Growth," IZA Discussion Papers 3164, Institute for the Study of Labor (IZA).
- Carlsson, Mikael & Messina, Julián & Nordström Skans, Oskar, 2011.
"Wage Adjustment and Productivity Shocks,"
Working Paper Series
253, Sveriges Riksbank (Central Bank of Sweden).
- Carlsson, Mikael & Messina, Julián & Nordström Skans, Oskar, 2011. "Wage adjustment and productivity shocks," Working Paper Series 2011:9, IFAU - Institute for Evaluation of Labour Market and Education Policy.
- Carlsson, Mikael & Messina, Julián & Nordström Skans, Oskar, 2011. "Wage Adjustment and Productivity Shocks," IZA Discussion Papers 5719, Institute for the Study of Labor (IZA).
- Carlsson, Mikael & Messin, Julián & Nordström Skans, Oskar, 2011. "Wage adjustment and productivity shocks," Working Paper Series, Center for Labor Studies 2011:14, Uppsala University, Department of Economics.
- James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 317-341.
- Sean Dougherty & Richard Herd & Thomas Chalaux, 2009. "What is holding back productivity growth in India ?: Recent microevidence," OECD Journal: Economic Studies, OECD Publishing, vol. 2009(1), pages 1-22.
- Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 381-402, July.
- Pravin Krishna & Andrei A. Levchenko, 2009.
"Comparative Advantage, Complexity and Volatility,"
NBER Working Papers
14965, National Bureau of Economic Research, Inc.
- Andrea Bassanini & Luca Nunziata & Danielle Venn, 2009.
"Job protection legislation and productivity growth in OECD countries,"
CEPR & CES & MSH, vol. 24, pages 349-402, 04.
- Bassanini, Andrea & Nunziata, Luca & Venn, Danielle, 2008. "Job Protection Legislation and Productivity Growth in OECD Countries," IZA Discussion Papers 3555, Institute for the Study of Labor (IZA).
- Panagariya, Arvind, 2011.
"India: The Emerging Giant,"
Oxford University Press, number 9780199751563.
- Aditya Bhattacharjea, 2006. "Labour Market Regulation and Industrial Performance in India--A Critical Review of the Empirical Evidence," Working papers 141, Centre for Development Economics, Delhi School of Economics.
- Paul Conway & Richard Herd, 2009. "How competitive is product market regulation in India?: An international and cross-state comparison," OECD Journal: Economic Studies, OECD Publishing, vol. 2009(1), pages 1-25.
- Simon Deakin & Priya Lele & Mathias Siems, 2007. "The Evolution of Labour Law: Calibrating and Comparing Regulatory Regimes," ESRC Centre for Business Research - Working Papers wp352, ESRC Centre for Business Research.
- Poonam Gupta & Rana Hasan & Utsav Kumar, 2008. "Big Reforms but Small Payoffs: Explaining the Weak Record of Growth in Indian Manufacturing," India Policy Forum, Global Economy and Development Program, The Brookings Institution, vol. 5(1), pages 59-123.
- Danielle Venn, 2009. "Legislation, Collective Bargaining and Enforcement: Updating the OECD Employment Protection Indicators," OECD Social, Employment and Migration Working Papers 89, OECD Publishing.
- Gal, Peter N. & Hijzen, Alexander & Wolf, Zoltan, 2013.
"The Role of Institutions and Firm Heterogeneity for Labour Market Adjustment: Cross-Country Firm-Level Evidence,"
IZA Discussion Papers
7404, Institute for the Study of Labor (IZA).
- Peter Gal & Alexander Hijzen & Zoltan Wolf, 2012. "The Role of Institutions and Firm Heterogeneity for Labour Market Adjustment: Cross-Country Firm-Level Evidence," OECD Social, Employment and Migration Working Papers 134, OECD Publishing.
- 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.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.