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Employment Protection Legislation and Labour Market Outcomes: A Unit Level Analysis of the Indian Manufacturing Sector

Author

Listed:
  • Sofi Irfan Ahmad

    (Department of Economics, Islamic University of Science and Technology, Kashmir, India)

  • Mehrotra Santosh

    (Centre for Development Studies, University of Bath, Bath, UK)

  • Reshi Adil Hussain

    (Department of Economics, Baba Ghulam Shah Badshah University, Rajouri, India)

Abstract

Building on insights from the insider-outsider theory, we examine the effects of the Employment Protection Legislation (EPL) on labour market outcomes, using high-court verdicts on labour disputes invoking Chapter 5-A and 5-B of the Industrial Disputes Act. Our regression analysis of a statewise unit-level dataset suggests that pro-worker judicial verdicts lead to an increase in wages and labour productivity especially in labour intensive industries, but discourage employment. The study demonstrates how the insider-outsider model combined with the labour market segmentation theory, unlike labour adjustment models, explain such findings consistently. The results suggest that loosening the EPL regime will have implications on the balance between the quantity and the quality of jobs, with serious consequences on industrial performance.

Suggested Citation

  • Sofi Irfan Ahmad & Mehrotra Santosh & Reshi Adil Hussain, 2022. "Employment Protection Legislation and Labour Market Outcomes: A Unit Level Analysis of the Indian Manufacturing Sector," Asian Journal of Law and Economics, De Gruyter, vol. 13(1), pages 101-122, April.
    • Handle: RePEc:bpj:ajlecn:v:13:y:2022:i:1:p:101-122:n:4
    DOI: 10.1515/ajle-2021-0063
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    More about this item

    Keywords

    employment protection legislation; labour disputes; judicial outcomes; labour market segmentation; wages; J21; K31;
    All these keywords.

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law

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