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Labour Market Flexibility and Changes in Employment: Spatial and Temporal Evidence from Indian Manufacturing

Author

Listed:
  • Gopal Krishna Roy

    (Jawaharlal Nehru University)

  • Amaresh Dubey

    (Jawaharlal Nehru University)

  • Suresh Ramaiah

    (Jawaharlal Nehru University)

Abstract

This paper delves into the debates concerning labour market flexibility in India and suggests an improved measure of labour market flexibility to overcome the shortcomings of the existing measures. A state-wise time-variant composite index considering both de jure and de facto indicators of flexibility is constructed to account for the stringency of regulation of hiring and firing practices that affect labour adjustment mechanism of organised manufacturing sector firms in India. The newly built index reaffirms the criticism and limitations of the existing measures which solely rely on de jure indicators by pointing out that de jure measures alone are highly misleading and insufficient to identify a state’s labour market flexibility status. The index has been put to application in examining the role of spatial variation in labour market flexibility in explaining the difference in employment growth in India’s organised manufacturing sector. The paper finds no evidence in support of a statistically significant effect of spatial variation in flexibility in explaining the variation in employment growth. Interestingly, the paper demonstrates that employment elasticity of growth was lower in “flexible” states as compared to the “rigid” states, indicating that greater flexibility is associated with a weaker employment performance.

Suggested Citation

  • Gopal Krishna Roy & Amaresh Dubey & Suresh Ramaiah, 2020. "Labour Market Flexibility and Changes in Employment: Spatial and Temporal Evidence from Indian Manufacturing," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 63(1), pages 81-98, March.
    • Handle: RePEc:spr:ijlaec:v:63:y:2020:i:1:d:10.1007_s41027-020-00207-8
    DOI: 10.1007/s41027-020-00207-8
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    References listed on IDEAS

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    Cited by:

    1. Gopal Krishna Roy & Amaresh Dubey, 2022. "A Note on Industrial Relations Code, 2020," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 65(2), pages 533-543, June.
    2. Diti Goswami & Sourabh Bikas Paul, 2020. "Labor Reforms in Rajasthan: A boon or a bane?," Papers 2012.01016, arXiv.org.

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    More about this item

    Keywords

    Labour market flexibility; Labour market indicators; Labour law; Labour policy; Employment; India;
    All these keywords.

    JEL classification:

    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J88 - Labor and Demographic Economics - - Labor Standards - - - Public Policy
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law

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