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What Role Does EPL Play in Wage Determination under Segmented Labour Markets? A State-level Analysis from India’s Formal Manufacturing Sector

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  • Irfan Ahmad Sofi

    (Irfan Ahmad Sofi is affiliated to the Department of Economics, Islamic University of Science and Technology, Awantipora, Jammu and Kashmir 192122, India.)

Abstract

This study explores the role of employment protection legislation (EPL) in wage determination using a state-level panel dataset for India’s formal manufacturing sector. Unlike previous studies, we create a quantitative indicator of EPL using state-wise court judgements (on labour disputes), citing various sections of Chapters 5A and 5B of the Industrial Disputes Act, 1947, particularly those dealing with employment and wage-related legislations. Our findings suggest that pro-worker court judgements specifically on wage-related issues lead to an increase in the share of wages in industrial output. The findings are robust to alternative model specifications. However, we find that the share of wages responds negatively to an increase in pro-worker strictness in the overall EPL. We also analyse the consequences of labour market dualism, which is increasingly becoming a norm even in formal sectors. Using insights from labour market segmentation theory, we argue that a divergence in the regulation between regular and contract labour has a potential to undermine the success of active labour market policies in curbing the ill-effects of market segmentation. JEL Codes: J21, K31

Suggested Citation

  • Irfan Ahmad Sofi, 2022. "What Role Does EPL Play in Wage Determination under Segmented Labour Markets? A State-level Analysis from India’s Formal Manufacturing Sector," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 16(3-4), pages 327-366, August.
    • Handle: RePEc:sae:mareco:v:16:y:2022:i:3-4:p:327-366
    DOI: 10.1177/09738010231158186
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    References listed on IDEAS

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    1. Abrar Rehman Rather & Irfan Ahmad Sofi, 2026. "Factors influencing employment contract and job mobility in India’s labour market: an empirical study," SN Business & Economics, Springer, vol. 6(2), pages 1-17, February.

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    Keywords

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    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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