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Labour Regulation and Employment Dynamics at the State Level in India

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  • Sean Dougherty

Abstract

Over the past decade, labour market outcomes have improved in India, with net employment rising markedly for the economy as a whole. However, these gains have arisen primarily in the unorganized and informal sectors of the economy, where productivity and wages are generally much lower than in the formal organized sector. It is only India’s organized sector that is subject to labour market regulation, and here employment has fallen. The role of employment protection legislation in affecting employment outcomes is controversial both in the OECD area and in India. This paper looks at the impact of employment protection legislation and related regulation on the dynamics of employment in the organized sector of the economy, using newly constructed measures of national regulation and state labour reforms. We find that while reforms have taken some of the bite out of core labour laws, more comprehensive reforms are needed to address the distortions that have emerged. This working paper relates to the 2007 Economic Survey of India (www.oecd.org/eco/surveys/india). Réglementation du travail et dynamiques de l'emploi au niveau de l'État en Inde Au cours de la dernière décennie, les résultats du marché du travail se sont améliorés en Inde, l’emploi net augmentant de façon sensible dans l’ensemble de l’économie. Cependant, ces gains sont intervenus essentiellement dans les secteurs non organisé et informel de l’économie, où la productivité et les salaires sont généralement bien moindres que dans le secteur organisé formel. Seul le secteur organisé est assujetti à la réglementation du marché du travail et, dans ce secteur, l’emploi a diminué. L’incidence de la législation de protection de l’emploi sur la performance du marché du travail est sujette à controverses aussi bien dans la zone de l’OCDE qu’en Inde. Le présent article examine l’impact de cette législation et des réglementations associées sur la dynamique de l’emploi dans le secteur organisé de l’économie, en utilisant de nouvelles mesures de la réglementation nationale et des réformes au niveau des Etats. Il ressort de cette étude que si les réformes ont permis d’assouplir quelque peu la rigidité du droit fondamental du travail, des mesures plus approfondies sont nécessaires pour remédier aux distorsions qui sont apparues. Ce document de travail se rapporte à l’Étude économique de l’Inde 2007 (www.oecd.org/eco/etudes/inde).

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Bibliographic Info

Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 624.

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Date of creation: 04 Aug 2008
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Handle: RePEc:oec:ecoaaa:624-en

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Keywords: labour laws; employment protection indicators; labour market distortions; job turnover; indicateurs de protection de l’emploi; distorsion du marché du travail; législation du travail; rotation du travail;

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Cited by:
  1. Paul Conway & Sean Dougherty & Artur Radziwill, 2010. "Long-term growth and policy challenges in the large emerging economies," OECD Economics Department Working Papers 755, OECD Publishing.
  2. Ashok Kotwal & Bharat Ramaswami & Wilima Wadhwa, 2011. "Economic Liberalization and Indian Economic Growth: What's the Evidence?," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 49(4), pages 1152-99, December.
  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. Saha, Bibhas & Sen, Kunal & Maiti, Dibyendu, 2013. "Trade openness, labour institutions and flexibilisation: Theory and evidence from India," Labour Economics, Elsevier, Elsevier, vol. 24(C), pages 180-195.
  5. 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.
  6. Guerriero, Marta & Sen, Kunal, 2012. "What Determines the Share of Labour in National Income? A Cross-Country Analysis," IZA Discussion Papers 6643, Institute for the Study of Labor (IZA).
  7. Danielle Venn, 2009. "Legislation, Collective Bargaining and Enforcement: Updating the OECD Employment Protection Indicators," OECD Social, Employment and Migration Working Papers 89, OECD Publishing.
  8. Pieters, Janneke, 2010. "Growth and Inequality in India: Analysis of an Extended Social Accounting Matrix," World Development, Elsevier, Elsevier, vol. 38(3), pages 270-281, March.
  9. Bishwanath Goldar, 2009. "Impact of Trade on Employment Generation in Manufacturing in India," Trade Working Papers 22921, East Asian Bureau of Economic Research.
  10. Voskoboynikov, I. & Timmer, M.P. & Vries, G.J. de & Erumban, A. A. & Wu H.X., 2011. "Deconstructing the BRICs: Structural Transformation and Aggregate Productivity Growth," GGDC Research Memorandum, Groningen Growth and Development Centre, University of Groningen GD-121, Groningen Growth and Development Centre, University of Groningen.
  11. K.V. Ramaswamy, 2013. "Size-dependent labour regulations and threshold effects: The Case of contract-worker intensity in Indian manufacturing," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2013-012, Indira Gandhi Institute of Development Research, Mumbai, India.
  12. Arup Mitra, 2009. "Impact Of Trade On Service Sector Employment In India," Trade Working Papers 22929, East Asian Bureau of Economic Research.
  13. 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.
  14. Betcherman, Gordon, 2014. "Labor market regulations : what do we know about their impacts in developing countries ?," Policy Research Working Paper Series 6819, The World Bank.

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